Buyout or Sellout?

From tiny acquisitions to massive combinations, Wall Street's urge to merge remains strong. Some of these deals might generate sought-after synergy, but others could create what Peter Lynch called "deworsification" -- weakening a business's core competency by grafting on wildly unrelated subsidiaries. How can we tell the good deals from the deal breakers?

Breaking down the buildup
To help, we'll turn to the 97,000 investors in Motley Fool CAPS. A combination of two companies with high CAPS ratings should bode well for the new company's 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's a handful of recently announced deals, and the ratings for most participating companies on CAPS' five-star scale:

A bear of a time
Although there seems to be a greater number of deals pending, in fact the first quarter's $736 billion is the smallest global dollar value amount in six years. The total number of deals is up 14% to more than 9,100 deals -- they're just worth less. The main reason is the 41% decline in U.S. deal values to $203 billion, though some of the slack has been made up in both Russia (up 173% to $33 billion) and China (up 43% to $35 billion).

A cavalcade of treatments
Japanese pharmaceutical giant Takeda, with annual revenue of around $12.3 billion -- about half that of Merck (NYSE: MRK) -- is positioning itself to challenge U.S. pharmas for leadership. Takeda wants to acquire Millennium because the resulting strong portfolio of drugs would offset the upcoming loss of patents for some of its top drugs while enhancing its status in the oncology industry worldwide. Japanese rival Eisai Pharmaceuticals has been busy with a number of smaller acquisitions in the same area, but Takeda recently made deals with Abbott Labs to split up its joint venture in TAP Pharmaceuticals; buy the Japanese unit of troubled Amgen (Nasdaq: AMGN) and licensing rights for some of its cancer drugs; and join Cell Genesys to develop and market the company's prostate cancer vaccine.

Did the announcement about the Takeda deal cause Millennium shareholders to miss out on an even better deal? According to plaintiffs in a least one lawsuit, yes. Takeda's tender offer was a 53% premium to the closing price of Millennium, a Motley Fool Rule Breakers recommendation, or 15 times its estimated 2008 sales. Not a cheap price at all, but the offer came the same day that Millennium was reporting that sales of its cancer treatment Velcade rose 42% year over year to $83.5 million. In a lawsuit for which the plaintiffs seek class-action status, they claim the stock price would have jumped on the Velcade news, meaning the premium Takeda offered wasn't so rich after all.

A value-added offer
What's your take on these deals? At Motley Fool CAPS, your opinion is as valuable as the pros'. Tell the CAPS community whether the urge to merge is good to go -- or whether you think it's better for the companies involved to remain independent.