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Buyout or Sellout?

By Rich Duprey - Updated Apr 5, 2017 at 7:05PM

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These companies have the urge to merge, but which deals will work out?

From tiny acquisitions to massive conglomerate combinations, Wall Street's urge to merge remains strong. How can we tell the dealmakers from the dealbreakers?

Breaking down the buildup
To help, we'll turn to the 120,000-plus investors in Motley Fool CAPS. Our data suggests that top-rated stocks offer the best opportunity to capture the best returns. 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 are a handful of recently announced deals and offers, and the ratings for each participating company on CAPS' five-star scale:


CAPS Rating


CAPS Rating

Deal Price

Johnson & Johnson (NYSE:JNJ)




$1.1 billion

Sierra Wireless (NASDAQ:SWIR)




$276.1 million

Thomson Reuters





Research In Motion (NASDAQ:RIMM)




$66 million (Canadian)

Electricite de France


Nuclear operations of Constellation Energy (NYSE:CEG)


$4.5 billion



iLogic Technology



Fairfax Financial (NYSE:FFH)


Northbridge Financial


$686 million

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

A merger of equals?
With growth rates slowing in the smartphone market, Research In Motion's Storm and Bold models were a welcome contribution to its efforts to fend off Apple's (NASDAQ:AAPL) iPhone, which quadrupled its sales from the year before. The RIM launch didn't go perfectly; delays in shipments contributed to the company's recent decision to cut earnings guidance. But RIM's reports of strong third- and fourth-quarter sales are encouraging. A successful hostile bid for Certicom would strengthen RIM's position in wireless digital encryption technology.

CAPS member Foliobuilder doesn't think RIM should be trading higher, though, given the headwinds the company still faces:

RIMM has been all about the enterprise side; RIMM is trying to sell its products to the consumer, but people areh't rushing out to buy a new $200 phone when their old phone is working just fine. Meanwhile Apple is eating RIMM's lunch because they have the consumer side and are now encroaching on the enterprise side. RIMM is levered to Wall Street; the loss of jobs on Wall Street negatively affected RIMM's bottom line. AAPL is expected to have a very strong qtr., and they are very stiff compeition for RIMM.

The nuclear option
It'll be hard for Constellation Energy to pass up France's offer of $4.5 billion for its nuclear operations. After all, that's just a little less than what Berkshire Hathaway's (NYSE:BRK-A) MidAmerican was willing to pay for the whole business. But don't cry for Buffett -- as usual, he'll be coming away with a pretty payday in the end, even if Constellation backs out: $175 million, plus interest, as a break-up fee.

Back in October, CAPS member Schmacko figured there were some arbitrage gains to be made in waiting for Buffett's deal to close. With the shares jumping 10% yesterday on the new bid, his patience seems to be paying off.

Bought some today at $22.75. Assuming the takeover deal goes through (cash deal @ $26.50/share) that's a roughly 16.5%, which in today's market is nothing to shake a stick at. Their annual dividend yield is currently over 8%.

A value-added offer
What's your take on these deals? Let us know on Motley Fool CAPS. While there, you can start your own research on these or other stocks. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock's CAPS page. There's more than you think.

Johnson & Johnson is a Motley Fool Income Investor recommendation. Berkshire Hathaway is a Motley Fool Inside Value selection. Berkshire Hathaway and Apple are Motley Fool Stock Advisor recommendations. The Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.

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Stocks Mentioned

BlackBerry Stock Quote
$6.78 (0.59%) $0.04
Constellation Energy Group, Inc. Stock Quote
Constellation Energy Group, Inc.
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$452,697.25 (1.66%) $7,395.26
Apple Inc. Stock Quote
Apple Inc.
$172.10 (2.14%) $3.61
Johnson & Johnson Stock Quote
Johnson & Johnson
$165.30 (-1.10%) $-1.84
Sierra Wireless, Inc. Stock Quote
Sierra Wireless, Inc.
$30.67 (0.13%) $0.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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