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-plus investors in Motley Fool CAPS. A combination of two companies with high CAPS ratings should bode well for the new firm's future results, while a high-rated company that joins 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:


CAPS Rating (out of 5)


CAPS Rating

Deal Price

Nucor (NYSE:NUE)


Ambassador Steel


$185 million

Alcatel-Lucent (NYSE:ALU)




$68 million

Fertitta Holdings


Landry's Restaurants (NYSE:LNY)


$1.3 billion

Cadence Design (NASDAQ:CDNS)


Mentor Graphics (NASDAQ:MENT)


$1.45 billion (offer rejected)

Jones Lang LaSalle (NYSE:JLL)


The Staubach Cos.


$613 million

Reliance Steel


PNA Group


$1.1 billion

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

Steely resolve
Steel continues to enjoy elevated levels of investor support, as indicated by the high marks both Nucor and Reliance Steel have received. As demand in China continues to grow despite previous fears of it supplanting the U.S. in dominance, the Nucor-Ambassador Steel deal underscores Nucor's preeminent position. CAPS player wallyblackburn feels that Nucor can command pricing power as a result:

This gives Nucor and other steel producers pricing power. Options activity (call buying) seems to indicate something is up. My guess is that they are going to increase their guidance. Watch for a pop in the stock when they do. But that's not the reason to buy NUE, the reason is long-term demand growth for steel worldwide.

Creature feature
Alcatel-Lucent will continue to jointly develop and sell remote management software for home networking systems as a result of its Motive purchase. But what’s probably more exciting is its deal with China Mobile (NYSE:CHL), which will let the telecom equipment provider help develop the next generation of 3G mobile service in China. Nonetheless, the history of Alcatel-Lucent has been a horror show of highs and lows, as CAPS investor alan83 points out:

Alcatel Lucent. American dream made into Horror Film all within 8 years from bottom to top and back down! Roller coaster ride its been for investors I bought below $5.00 and I think management has a new found fix and growth plans. Still will have road blocks but I think company will prosper.

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.