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What: Shares of animal by-products processor Darling International
So what: The business of recycling food and animal by-products is not won on the strength of brand power and strong consumer preference. In fact, most of Darling's finished products are commodities. However, scale is a winner in this business and by combining with one of the other largest U.S. processors, Darling gives itself a big boost in that column. Aside from the sheer gain in size, the transaction will give Darling other benefits, including more diversity in the types of raw material inputs.
Now what: While the merger rational seems very strong, the price Darling is paying -- that is, transaction value versus Griffin's profit-generating ability -- will have a lot to do with how much value shareholders get from this tie-up. Plus, since most of the financing for the deal will come from new debt, investors will also have to consider the new company's ability to service that burden. Assuming those considerations pass muster, this looks like a solid deal to make Darling a bigger, stronger player in its industry.
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Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool's disclosure policy assures you no Wookiees were harmed in the making of this article.