Sometimes mergers are necessary for survival, and at other times, they simply just make good old-fashioned sense. In either case, investors lucky enough to own stocks that do get bought out can turn a nice profit.
We reached out to our contributors, and asked them to tell us what stocks they think could get bought. They settled on Twitter (NYSE:TWTR), GoPro (NASDAQ:GPRO), and Merrimack Pharmaceuticals (NASDAQ:MACK). Read on to learn if these companies are worth owning in your portfolio.
A stock good enough for a president
Rich Smith (Twitter): Remember how last year, the internets were all a-twitter with rumors that Walt Disney -- or maybe Google, or perhaps salesforce.com -- was going to buy Twitter? It never actually happened, of course, but I think it might have happened -- and I think it still should happen.
Second only to Facebook in internet mindshare, Twitter is the stock success story that never quite made it. Twitter went public more than three years ago at $26 per share, and almost immediately doubled in price before investors began to notice a "giant sucking sound," which ultimately pulled down Twitter to its current price of $18.50.
You can blame Twitter's failure on any number of things: a lack of profits, single-digit revenue growth, or zero growth in its user base (as of last quarter). At the same time, with 320 million monthly visitors to the site, Twitter remains a force to be reckoned with on the internet, and will only grow more important as President Trump uses it as his social-media trumpet.
Other fans of Twitter may tout its usefulness for keeping abreast of celebrity news, its deals with sports organizations, or its efforts in live-streaming. But for me, the key is this: Today, anyone who wants to know what's going on in the White House, and even anyone who wants to oppose what's going on in the White House, needs to be on Twitter to stay informed. This single fact makes Twitter one of the most important pieces of internet real estate out there today; if the company's current owners can't figure out how to make a profit off that, I'm certain there are other internet tycoons who have the egos to believe that they can do better.
Sooner or later, one of those guys is going to buy Twitter. I'm betting on sooner.
Will a buyout send this stock flying?
Tim Brugger (GoPro): Now that the Karma drone is back, at least in limited quantities in the U.S. (for now), some pundits have suggested that GoPro's future relies on consumers getting back on board now that its battery-latch issue has been resolved.
Unfortunately, it's not quite as simple as that. As founder and CEO Nicholas Woodman noted in GoPro's recently announced fourth-quarter and 2016 annual results, its HERO5 Black camera was the best-selling digital "imaging device" in the country, along with select international markets, last quarter. And GoPro's mobile efforts, which include its Quik app, are picking up steam. But the primary concern remains: GoPro simply doesn't have the product diversification it needs to weather an unexpected storm.
Woodman warned investors to not expect much in GoPro's fourth quarter, and the reason behind his trying to mute expectations is why GoPro is begging for a buyout. The problems started with the aforementioned Karma being recalled ahead of the all-important holiday shopping season, along with some manufacturing hiccups. When one product miscue causes the poor results GoPro announced on Feb. 2, on the heels of an equally disappointing third quarter -- in which its revenue of $540.6 million was woefully short of the $574.5 million expected -- it's a scary proposition.
However, a buyout by a company that could add GoPro's camera and drone to an already diversified product lineup: Now that would make sense. And the timing couldn't be better for a suitor, given GoPro's woeful 18% stock-price decline over the past year.
It's unlikely, but it could still happen
Todd Campbell (Merrimack Pharmaceuticals): Instead of buying Merrimack Pharmaceuticals lock, stock, and barrel, Ipsen (NASDAQOTH:IPSEY) bought Merrimack's only FDA-approved drug. Ipsen's apparent unwillingness to acquire Merrimack outright casts doubt that any suitor will emerge for the company, especially now that it's sold its only commercial drug. But an acquisition is still possible.
Weighed down by a heavy debt load and commercialization expenses associated with its pancreatic cancer drug Onivyde, Merrimack announced a massive layoff last fall. The layoff gave the company some wiggle room, but it wasn't enough, so the board cut a deal to sell Onivyde to Ipsen for $575 million up front, plus promises of up to $450 million in milestone payments.
The company plans to return $200 million of the up-front money to investors as a special dividend, and plans to retire $175 million in long-term debt. Management will also invest $125 million of the windfall back into its clinical-stage drug pipeline.
This deal gives Merrimack Pharmaceuticals a cash runway that stretches into 2019; hopefully, that will be enough time for management to prove that the remaining drugs in its pipeline are worthwhile. Those drugs include MM-121, which is being evaluated in non-small cell lung cancer, MM-141, which is being studied in metastatic pancreatic cancer, and MM-310, a preclinical drug that's expected to enter phase 1 trials this year.
Undeniably, the company will be in better financial shape than it's been in years, once this deal closes. But trial uncertainty and ongoing expenses could make Merrimack Pharmaceuticals open to entertaining offers from a suitor. If not, it might at least be willing to cozy up with a deep-pocketed biopharma on one or more of its remaining drugs.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Rich Smith owns shares of Alphabet (C shares). Tim Brugger owns shares of Walt Disney. Todd Campbell owns shares of Facebook, Merrimack Pharmaceuticals, Salesforce.com, and Twitter.
The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Facebook, GoPro, Twitter, and Walt Disney. The Motley Fool has the following options: short January 2019 $12 calls on GoPro and long January 2019 $12 puts on GoPro. The Motley Fool recommends Salesforce.com. The Motley Fool has a disclosure policy.