Another "Merger Monday" lit a fire beneath investors and the S&P 500 with merger and acquisition rumblings and announcements signaling to investors that businesses are still willing to take on risks in order to expand. The end result was yet another up day for the broad-based index.
Also helping to push the index higher was surprisingly strong pending home sales data for March. Following eight consecutive months of declines, optimists were given a treat via a 3.4% increase in pending home sales, likely thanks to the combination of historically low lending rates driving homebuyers to take the plunge and warmer weather encouraging them to purchase their dream home. Still, even after this March report, I'd caution investors that homebuyers have been incredibly sensitive to interest rate swings, and just last quarter mortgage servicing companies generated their lowest cumulative loan totals in 14 years. This is a sector that could still be ripe for a downturn.
With M&A in mind, better than expected housing data, and dozens of large multinational corporations set to report earnings this week, investors had no problem pushing the S&P 500 higher by 6.03 points (0.32%) to close at 1,869.43.
Leading all stocks to the upside was Susser Holdings (NYSE:SUSS), which surged 36.3% after it agreed to be acquired by Energy Transfer Partners (NYSE:ETP) for $1.8 billion. Under the terms of the deal, Susser stockholders will have the option of receiving either $80.25 in cash, 1.4056 Energy Transfer Partners common units, or a combination of both, for every share they own. It appears to be a great deal for all parties involved, enabling Energy Transfer Partners to take advantage of Susser's growing retail presence that now covers hundreds of convenience stores. ETP also gets general partner ownership of Susser Petroleum Partners, giving it incentive distribution rights. Susser shareholders get a premium of roughly 18 times its trailing operating cash flow, which seems more than fair.
Also taking advantage of M&A mania today was biopharmaceutical development company Furiex Pharmaceuticals (UNKNOWN:FURX.DX), which skyrocketed 28.6% after agreeing to be acquired by Forest Laboratories for $1.46 billion. Furiex shareholders will receive $95 per share in cash and could receive up to an additional $30 per share contingent on the approval of late-stage diarrhea-predominant irritable bowel syndrome drug eluxadoline. Upon closing of the deal, Forest Labs plans to sell most of Furiex's royalty rights business to Royalty Pharma for $415 million. Actavis, which is actually in the process of purchasing Forest Labs, gave its thumbs-up to the deal. While I'd be doing a jig if I were a Furiex shareholder, I'm not quite certain that, even with positive late-stage results from Furiex, Forest Labs didn't overpay. There's still enough uncertainty surrounding eluxadoline that I'm not sold on this being a smart deal for Forest or Actavis just yet.
Finally, and sticking with the health-care sector, pharmaceutical behemoth AstraZeneca (NYSE:AZN) advanced by 12.2% after confirming that it had indeed been approached by Pfizer (NYSE:PFE)in January with an acquisition bid of roughly $98.7 billion, according to CNBC. Even after being turned down twice by AstraZeneca, which argues that Pfizer's offer clearly undervalues the company, Pfizer isn't deterred one bit. This has investors hopeful that there could be another even larger offer on the way. Given AstraZeneca's pipeline struggles and patent expirations, the combination may not be a bad idea, and it would certainly make sense in my eyes from a strategic and pipeline standpoint. From the viewpoint of Pfizer, however, I would be extremely reluctant to pay even more for AstraZeneca's unexciting pipeline at this point.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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