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 "de-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 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:
|
Acquirer |
CAPS Rating (out of 5) |
Target |
Deal Price | |
|---|---|---|---|---|
|
Fresenius Medical Care (NYSE:FMS) |
***** |
APP Pharmaceuticals (NASDAQ:APPX) |
** |
$3.7 billion |
|
NBC Universal, a unit of General Electric (NYSE:GE) |
**** |
Weather Channel, from Landmark Communications |
NR |
$3.5 billion |
|
Huron Consulting (NASDAQ:HURN) |
**** |
Stockamp & Assoc. |
NR |
$219 million |
|
Eli Lilly (NYSE:LLY) |
*** |
SGX Pharmaceuticals (NASDAQ:SGXP) |
NR |
$64 million |
|
Thermage (NASDAQ:THRM) |
* |
Reliant Technologies |
NR |
$87.5 million |
CAPS ratings courtesy of Motley Fool CAPS; NR = not rated.
A pharmacopoeia of opportunity
Perhaps investors’ focus on pharmaceutical pipelines is really myopia at work. While a blockbuster drug can do wonders for a pharma's bottom line, such wonder drugs don't have to be developed in-house. Keeping the pipeline flowing through acquisitions, as Eli Lilly has been doing, can certainly keep the opportunities high. Its latest acquisition of SGX Pharmaceuticals ought to bolt on a company whose drug-discovery platforms should bolster Lilly's R&D efforts.
Investors like JoyofMoney find the aggressive nature of the Income Investor recommendation to be an attractive feature that makes the pharmaceutical a long-term stock for one's portfolio:
One of the more aggressive Pharmaceuticals out there, [Eli Lilly] has a great reputation. It is smart enough to try and stay current-in particular I think the buy of the biotech company will only enhance. Fundamentals again are reasonable-long term is what I aim in for with this one. Price is coming from its low. Should perform despite bear volatility right now.
Tighten up
Like the aesthetic laser companies, skin tightening and resurfacing company Thermage possesses an enviable demographic: baby boomers who want to forestall the effects of aging. It's not so surprising, then, that the company is picking up an aesthetic laser company, Reliant, to supplement its skin-rejuvenation portfolio. Yet a difficult economy may have consumers putting such elective procedures on hold indefinitely.
That doesn't deter investors like hhredevil. Back in March, this CAPS player found the quick, in-office procedure an attractive option to going under the knife for cosmetic surgery:
Is there any woman who wouldn't like to have her entire body Thermaged every six months? Gone are the days of committing acts upon your body that could turn you into a Joan Rivers look alike. Also gone are the days of taking time off to recover from cosmetic surgery. Give us a lunch fix and make us look twenty years younger!
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.
