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Buyout or Sellout?

By Rich Duprey - Updated Apr 5, 2017 at 6:53PM

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

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

Breaking down the buildup
To help, we'll turn to the 125,000-plus investors in Motley Fool CAPS. Our data suggests that top-rated stocks offer the best opportunity to get the best returns. A combination of two companies with high CAPS ratings should bode well for the new company, 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 the ratings for each participating company on CAPS' five-star scale:

Acquirer

CAPS Rating

Target

CAPS Rating

Deal Price

Lockheed Martin (NYSE:LMT)

****

Universal Systems & Technology

NR

Not disclosed

Medtronic (NYSE:MDT)

*****

GAHM product line from InfluENT Medical

NR

Not disclosed

Munich Re

NR

Hartford Steam Boiler from American International Group (NYSE:AIG)

***

$742 million

Panasonic

***

Sanyo Electric

****

$9 billion

St. Jude Medical (NYSE:STJ)

*****

MediGuide subsidiary of Elbit Systems  

*****

$283 million

Wipro (NYSE:WIT)

****

IT division from Citigroup (NYSE:C)

**

$127 million

Wyeth (NYSE:WYE)

****

Thiakis

NR

$30 million

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

Assurance of recovery
With $150 billion in government loans that it needs to repay, American International Group needs to sell off some of its assets to raise the cash. Yet it's letting its Hartford Steam Boiler division go for a price that is raising concerns that it might not be able to sell off enough stuff to raise the needed cash. The $742 million price tag is only a third less than what the insurer paid for Hartford eight years ago.

CAPS member Spencecary finds there is simply too much uncertainty surrounding AIG for it to warrant anything other than pessimism. That probably doesn't bode well for the U.S. taxpayer.

Right now AIG has a lot of debt on their balance sheet…No one is optimistic about the future of the company and the company will be undervalued until the future of the company looks more stable.

A good offense needs a strong defense
CAPS member Duscio thinks it is short-sighted to imagine that defense spending will become a thing of the past, even with a new administration coming on board. Threats to the safety and security of the U.S. require a strong defense, and Lockheed Martin will continue to be a part of that, even if the government shrinks the defense budget.

War & terrorism will always be & USA's exposure to growing [terrorist] threats should increase over the long haul. To counter homeland threats USA likes to take its fight to a foreign theater. While the possibility of a major [conflict] surely exist it is unlikely. Prolong minor [engagements] are more likely, i.e. [Afghanistan].

The Obama [administration] would like nothing more than to isolate the USA from all conflicts but it is unreasonable to think that it can.

Military spending may be reduced somewhat in the coming years but will not be drastically reduced or eliminated. Only the biggest of contractors with proven track records will be [among] the survivors.

The acquisition of Universal Systems & Technology is a key part of Lockheed's plan to remain relevant in this country's defense, because it provides interactive training to the armed services and Department of Homeland Security.

A value-added offer
What's your take on these deals? Let us know on Motley Fool CAPS. And 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.

On Jan. 12, 2009, Fool co-founder David Gardner, Jeff Fischer, and their Motley Fool Pro team will accept new subscribers to their real-money portfolio service. Motley Fool Pro is investing $1 million of the Fool’s own money in long and short positions in a range of securities, including common stocks, put and call options, and exchange-traded funds (ETFs). They also incorporate proprietary CAPS "community intelligence" data into their research. To learn more about Motley Fool Pro and to receive a private invitation to join, simply enter your email address in the box below. 

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

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Stocks Mentioned

American International Group, Inc. Stock Quote
American International Group, Inc.
AIG
$57.41 (1.92%) $1.08
Lockheed Martin Corporation Stock Quote
Lockheed Martin Corporation
LMT
$434.24 (1.26%) $5.39
Citigroup Inc. Stock Quote
Citigroup Inc.
C
$54.38 (0.70%) $0.38
Medtronic plc Stock Quote
Medtronic plc
MDT
$94.82 (0.83%) $0.78
St. Jude Medical, Inc. Stock Quote
St. Jude Medical, Inc.
STJ
Wipro Limited Stock Quote
Wipro Limited
WIT
$5.51 (1.47%) $0.08

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

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