There's been a flurry of buyout activity in 2018. The first half of the year alone scored a record $2.5 trillion worth of deals, and we still have a few more weeks for companies to go holiday shopping.
I love to play matchmaker, and a little more than 11 months ago, I tapped into my inner Emma to write about three stocks that could get acquired in 2018. I figured that the right ingredients, activists, and catalysts were in place for Casey's General Stores ( CASY -0.23% ), Pandora ( P ), and SeaWorld Entertainment ( SEAS -3.14% ) to smoke out suitors by the end of the year. I was only right about one deal -- Pandora -- but now is as good a time as any to reflect on where things stand for three still-attractive buyout candidates.
Casey's General Stores
The convenience store operator seemed to be the most likely of the three stocks I mentioned in early January to get hooked up in 2018. Activist investors led by JCP Investment Management went public with their request for Casey's General Stores to put itself up for sale. It didn't happen.
Casey's came back in March with an increased value creation plan. Instead of heeding the activist call for an exit strategy, Casey's offered up key initiatives that would drive it to increase profitability, boost operational performance, and ultimately enhance shareholder value. The convenience store giant failed to impress investors with its fiscal fourth-quarter results three months later, but it turned heads in a good way with its blowout performance for its fiscal first quarter in September.
It will announce its fiscal second-quarter financials after Monday's market close. If it's anything like its last showing, there won't be much of a call for Casey's General Stores to find a buyer. The stock hit two-year highs last month, and it's holding up well enough on its own to dictate its own fate.
The theme park operator also seemed on the ropes earlier this year. Attendance and revenue were declining for the fourth year in a row -- in 2017 -- and late last year, there was a widely circulated Bloomberg report detailing an overseas theme park operator that was interested in acquiring some of SeaWorld's healthier assets. The sale failed to materialize, but the chatter began bubbling up again through online channels last month.
SeaWorld Entertainment is no longer in trouble. Attendance and revenue have risen in the high single digits through the first nine months of 2018, and the stock is up 99% so far in 2018. An emphasis on new rides and being more than five years removed from the brand-skewering Blackfish documentary are helping make SeaWorld cool again. Just as Casey's General Stores is doing well enough that it won't sell itself cheap, SeaWorld is only going to bow out if it receives a buyout offer that it can't refuse at a huge premium.
The one buyout candidate I did get right was Pandora. The streaming music pioneer agreed to be acquired by Sirius XM Radio ( SIRI -0.64% ) three months ago in an all-stock deal initially valued at $3.5 billion. The transaction should close early next year. The satellite radio giant was always the most logical suitor. It had publicly coveted Pandora, settling for a 15% minority stake last year.
A combination of the satellite radio monopoly and the digital music didn't seem possible as Pandora stock began zooming higher in 2018. Pandora is still experiencing stagnancy in its audience base, but revenue has been moving higher as premium services and stronger ad rates have helped offset hiccups in usage. Despite a sharp rise this year -- the stock is trading 81% higher year to date -- Sirius XM was still able to convince Pandora's board that taking an all-stock deal at a modest premium is more attractive than heading into 2019 as a swinging single.
Getting it right just once out of three tries may be great in baseball but lousy in investing. However, it's hard to argue with results. All three of the stocks have been big winners in 2018, and if you bought a basket of all three stocks equally weighted, that basket would be trading 63% higher this year. I'll take that, and I'll come back later this month with fresh buyout candidates for 2019.