On Tuesday's MarketFoolery, host Mark Reeth, Million Dollar Portfolio analyst Michael Olsen, and Motley Fool One analyst Morgan Housel look at some of the reasons behind the plethora of big deals occurring on the market today.
Mark wants to know why so many companies are making deals, and Morgan sees CEOs' incentives as a large reason. Morgan explains that CEOs are paid for short-term gains, rather than long-term investments in their companies. He adds that it's much easier to do financial engineering than it is to invest in your own company. Michael believes that many of these big deals center around two financial terms: tax inversion and strategic transactions. But Michael doesn't think these "flavors of the day" should persuade anyone to invest. He suggests investors look at the strategic merit of deals, instead of the soup du jour.
Then Mark asks what recent big deal is the best deal for investors. Is it the love triangle of Hillshire Brands (UNKNOWN:HSH.DL), Pilgrim's Pride (NASDAQ:PPC), and Tyson Foods (NYSE:TSN)? Medtronic (NYSE:MDT) and Covidien (UNKNOWN:COV.DL)? Pfizer (NYSE:PFE) and AstraZeneca (NYSE:AZN)? AT&T (NYSE:T) and Comcast (NASDAQ:CMCSA)? Michael likes the merger of Zimmer Holdings (UNKNOWN:ZMH.DL) and Biomet, which he thinks offers synergistic opportunities. Additionally, he believes the AT&T-Comcast deal has the potential to be interesting, as it offers scalable investments in bandwidth and bundled services. Morgan approaches these mergers and acquisitions a bit more cynically, noting that historically, such megadeals offer shareholders little value.
Mark then turns the conversation to IPOs, specifically Alibaba. Morgan wonders how many Americans have actually heard about the Chinese e-commerce giant, noting that he can't think of any other company that is so large in one market yet has such an awareness gap in another. Michael believes Alibaba's potential for a strong foothold in the United States is inherently limited.