Buyout rumors are a dime a dozen on Wall Street, so investors should never invest in a company with the assumption that it will be acquired. However, investors should still follow the latest news so they aren't surprised when a major deal happens. Here are three potential buyouts that could occur in the near future.
The battle over Xerox
Xerox (XRX) hasn't been a great long-term investment. Its stock tumbled nearly 40% over the past ten years as the S&P 500 more than doubled. Xerox's sales of photocopiers are being cannibalized by multifunction printers, which drags down its bigger "post sale" business of maintenance services, supplies, and document services.
Its spin-off of Conduent, its business processing outsourcing operations, streamlined its business, but its growth remains negative. Analysts expect its revenue and earnings to drop 6% and 4%, respectively, this year.
As a result, investors Carl Icahn and Darwin Deason, who together own a 15.7% stake in Xerox, want the company to explore a potential sale and oust CEO Jeff Jacobsen. They also want Xerox to shake up its board and either renegotiate or terminate its Fuji Xerox joint venture with Fujifilm. It's unclear if buyers will emerge for Xerox, which has an enterprise value of $12 billion, but Icahn and Deason might cobble together a deal later this year.
The Philip Morris empire strikes back
Altria (MO 1.26%) spun off its international business as Philip Morris International (PM 1.17%) in 2008. Altria focused on the shrinking domestic market, while PMI strengthened its presence in higher-growth overseas markets.
But last year, PMI's rival British American Tobacco acquired Reynolds American, the second largest tobacco company in America. That buyout enabled BAT to overtake PMI as the largest publicly traded tobacco company in the world.
Since BAT can now invest more heavily in the American market, many analysts believe Altria needs to acquire PMI to stay competitive. Last year, Wells Fargo analysts Bonnie Herzog, Patty Kanada, Adam Scott estimated that there was a 70% chance that the merger would occur, with Altria paying a 20% premium for PMI.
Another media megamerger on the horizon
Lastly, the on-again and off-again talks about CBS (PARA -1.33%) buying Viacom (NASDAQ: VIA) (VIAB) seem to be on again, as Shari Redstone -- whose family controls both companies -- reportedly favors a merger again.
CBS originally split with Viacom in 2006 on the notion that the two companies could blossom separately. But over the past decade, the media industry has evolved, with cord-cutters threatening weaker players as the bigger ones consolidate the market.
AT&T is trying to buy Time Warner, while Disney agreed to buy most of 21st Century Fox's media assets late last year. Those two deals will leave CBS and Viacom further behind, as both companies face unpredictable headwinds across the TV and film industries. Therefore, it would be logical for the two companies to recombine, but there's no guarantee that merging these two laggards will produce a winner.
The key takeaways
The takeovers of Xerox, Philip Morris International, and Viacom seem more viable than most buyout rumors. Xerox is being prodded along by big investors, while PMI and Viacom should logically recombine with their former halves to counter the competition.
But if those deals don't happen, the only one of those stocks I'd recommend owning is PMI -- which still has a strong market position, decent growth prospects, and a solid dividend. Meanwhile, Xerox and Viacom could keep sinking if buyouts don't happen soon.