Buyout or Sellout?

From tiny acquisitions to massive conglomerate combinations, Wall Street's urge to merge remains strong. Some of these deals might generate sought-after synergy, but others could create what Peter Lynch called "di-worse-ification" -- weakening a business's core competency by grafting on wildly unrelated subsidiaries. How can we tell the good deals from the dealbreakers?

Breaking down the buildup
To help, we'll turn to the 110,000 investors in Motley Fool CAPS. A combination of two companies with high CAPS ratings -- four or five out of the maximum five -- should bode well for the new firm's future results, while a highly rated company that joins with a lower-rated one may benefit one set of investors more than the other.

Despite troubles in the capital markets, the deals won't stop; they simply might involve more stock and less cash. Here's a handful of recently announced deals, and the ratings for each participating company on CAPS' five-star scale:

Acquirer

CAPS Rating (out of 5)

Target

CAPS Rating (out of 5)

Deal Price

Cleveland-Cliffs (NYSE: CLF  )

****

Alpha Natural Resources (NYSE: ANR  )

***

$10 billion

Convergys

****

Intervoice

**

$335 million

ViroPharma (Nasdaq: VPHM  )

*****

Lev Pharmaceuticals

NR

Up to $617.5 million

Entegris

****

Poco Graphite

NR

$158 million

InBev

NR

Anheuser-Busch (NYSE: BUD  )

****

$52 billion

Ashland (NYSE: ASH  )

***

Hercules (NYSE: HPC  )

*****

$3.3 billion

Harley-Davidson (NYSE: HOG  )

**

MV Agusta Group

NR

$109 million

CAPS ratings courtesy of Motley Fool CAPS; NR = not rated; NA = terms not disclosed.

Drink up!
This Bud's not for you, but you can have a Bass, a Beck's, or a Stella Artois. InBev, the world's largest brewer, was able to hook up the Clydesdales by adding a little bubbly to its original offer, which was poised to become a fractious buyout attempt. By upping its bid by $5 a share to $70, InBev will gain access to Anheuser-Busch's 48%-market-share stranglehold on U.S. beer sales. Of course, when the first offer was made, Bud's board criticized InBev for having operations in Cuba, but apparently an extra $6 billion makes that much less of an issue.

Assuming the deal goes through -- and there's a $1.25 billion break-up fee for either party if it doesn’t -- investors like CAPS member daynem07 see InBev's worldwide market share becoming just about unbeatable: "InBev will now be producing 1/4 of the worlds beer."

Hogging up the road
They may be fast, and they may have their own diehard legion of advocates, but sport motorcycles like those produced by MV Agusta are most definitely not Harleys. How are you going to put loud pipes on that? While Harley-Davidson enthusiasts remain passionate about their Hogs -- and if you couldn't tell, I'm one of them -- it's also true that selling Harleys these days isn't as easy as it once was. Sport bikes make up half of all motorcycle sales, about 80% in Europe. With Harley's profits falling 23% on a 15% decline in unit sales in the latest quarter, the iconic bike maker needs to have another market to sell into -- even if the situation is reminiscent of the first signs of the Apocalypse, when AMC bought Harley back in 1969.

Of course, Harley's racing-style, liquid-cooled V-Rod wasn't particularly well-received by diehard Hog riders when it was introduced in 2001, but it quickly became a top seller. And it was probably the same when Harley introduced the Softail to ease the ride for all those weekend warriors who wanted to look like they were members of the Hells Angels.

As the well-named All-Star CAPS member choppaz4life notes, bikers will find an excuse to buy a Harley if they really want one:

This is an iconic brand with global exposure (recently bought MV Agusta, an Italian bike maker). People who want to ride a Harley will find a excuse to buy one ... Long term global growth ... Near or at 52 wk low. Local shops are BUSY, stop by and talk to a couple of salesmen. Check out the sledz. Take a test ride. Get the wind in your face. Take a Harley home and be the coolest "dentist" or (insert your own cushy overpaid job title here) on your block. But please lay off the outlaw biker attire. Trust me, everyone can tell the difference.

A value-added offer
What's your take on these deals? At Motley Fool CAPS, your opinion is as valuable as the pros'. Tell the CAPS community whether the urge to merge is good to go -- or whether you think it's better for the firms involved to remain independent.

Anheuser-Busch Companies is a former Motley Fool Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article, though he's owned a few Harleys over the years. You can see his holdings here. The Motley Fool has a disclosure policy, and Rich assures us he will not be buying an Agusta bike.


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