It is this Monday, October 12th that marks the day, or week where I believe many companies can be acquired. We have seen M&A activity pick up with Disney’s bid for Marvel, a well run company that has strong fundamentals and a nice probability of outperforming the markets. We have also witnessed Kraft bidding for Cadbury, Dell making an offer to Perot, as well as Affiliated Comp. Services becoming a target for Xerox. Keep in mind that of these four acquirers, two are components of the Dow Jones Industrial Average. Thus a key question that comes to mind after considering the recent M&A activity is what Dow Components will be the next acquirers and who will be the targets?
Over the last 12 to 15 months we have seen endless companies hoard cash as a result of the economic crisis, lacking credit, and everything else that had caused such a spooky environment. But now that the markets have been fighting back with the help of some leading economic indicators, stabilizing home prices, available credit, and companies reporting better numbers than expected, with equities on the move, rising valuations are more likely than dubious. Therefore, many companies might almost feel obligated to make acquisitions now so they could avoid paying even more of a premium at some later point in time.
This week, October 12th – 16th, we will see many companies report: Charles Schwab, CSX, Intel, Citigroup, JP Morgan, Google, and GE just to name a few. With such a key earnings week approaching and the Dow recently hitting new highs for the year, not to mention the strong momentum and millions of investors that are so eager to jump back in, we easily have the fuel to push the Dow above that psychological 10,000 mark. If that occurs, the markets can continue to rise. Clearly there are some concerns such as a weak dollar and a federal tax credit to first time home owners that is near expiration to name a few, but on the contrary, everyone expects some ‘pullback’ but that might not even be warranted! If this week gives us a great optimistic read on the consumer and the general economy, why does the market have to pull back?
At the end of the day, I believe there is still a lot of room for consolidation throughout a broad array of sectors and synergies to be created if such acquisitions occur. How about Under Armour being taken over by Nike, Activision or Microsoft bidding at Take-Two Interactive, or a Merck or Pfizer picking up a Cell Therapeutics or some other biotech? Just some thoughts…
Subscribe to:
Post Comments (Atom)
1 comment:
In response to the above post where I wrote about the potential upside movement in equities that could occur as well as the M&A activity that could take place, this week we saw some interesting outcomes. First off, when I questioned which Dow Components would be the next acquirers, well, here came Cisco buying Starent for $2.9 billion, a healthy premium to what STAR was trading at prior to the announcement. However, when I warned how now should be the time for acquisitions because sooner than later potential acquirers will be paying more of a premium (on the assumption that the equity markets continue to rise), well that theme is becoming more present with consideration to again, Cisco. CSCO had made a $3 billion bid for Tandberg, a company that offers products and services for the video conferencing industry that is based out of Norway, yet holders of the company did not just give Cisco a cold shoulder claiming that the company has potential but said they were open to evaluate a higher offer either from Cisco or another bidder. So here we have it, companies know that higher valuations are around the corner, and I believe that if potential acquires continue to hold back on spending, opportunities to acquire great companies at fair prices will dwindle.
Another example could be found with Biogen Idec’s hostile attempt to acquire Facet Biotech. BIIB’s offer to acquire all the s/o of common stock for $14.50 is deemed undervalued by Facet. Consider the following quote from FACT’s chief executive officer: “We analyzed the unsolicited tender offer put forward by Biogen Idec to our stockholders and determined that $14.50 per share does not reflect the value of our company and its prospects.” –News Release, Facet Biotech’s Investor Relations
However, it is interesting that the $14.50 market value per share is less than the closing price of $18.00 last Friday. Facet acknowledged that as a reason to reject the offer and also said that the deal is funded by its own cash and investment securities, yet neglected to admit that the offer of $14.50 was still a great premium to what Facet was trading at prior to the announcement.
Facet Biotech, as well as other companies might argue that their developing pipeline and/or other assets/strategies are reasons to reject offers thus indicating that whatever an offer might be, it is not truly reflecting the company’s value. Yet at the end of the day, I really do think it is the fact that because equities as an asset class are rising, Board of Directors are afraid to accept offers (even with premiums now) – perhaps it is the great chance that a few months from now, the equity in companies could be much higher.
Post a Comment