Corporate Takeovers Draw Cheers From Wall Street, For The Most Part

Feb 20 2014, 9:20am CST | by

Merger arbitrageurs used to have an easy calculus. When a big-time corporate takeover was announced they would go long the target, short the acquirer and pick up a few pennies on the dollar for their trouble.

These days the trade is going the other way, with corporate buyers being rewarded by Wall Street for having the gumption to use their cash for something beyond dividends and share repurchases. Take the example Wednesday morning, when Signet Jewelers raced higher after agreeing to pony up $1.4 billion for diamond-dealing rival Zale Corporation.

That followed Tuesday’s $25 billion deal between Actavis and Forest Laboratories, which juiced shares of both companies and drew raves from billionaire activist investor Carl Icahn, an agitator for change at Forest.

In January, Google shares rose the day after the company said it would shell out $3.2 billion for Nest Labs, the maker of smart devices for the home.

Rare is the corporate board or management team that wants to go out on a limb, though many would claim to follow the Warren Buffett philosophy of being greedy when others are fearful. The vote of confidence being given to acquirers in the most recent spate of deals is one more reason to expect that some of the hundreds of billions of dollars sitting on corporate balance sheets may be put to use in M&A this year.

Corporate takeovers can often be the equivalent of trades or draft picks in professional sports, meaning that it often takes years to determine whether a deal is a winner or loser. And even with many acquirers rallying on deal news in recent months, positive reception for corporate shopping sprees aren’t universal. Facebook certainly made a splash Wednesday, when it shelled out $19 billion in cash, stock and restricted shares to buy messaging service WhatsApp. But observers expressed reservations over the eye-popping price tag for such a young company. An initial 5% after-hours dip was followed by a decline when trading started Thursday with shares off a bit more than 2% in the first half-hour of trading.

An M&A boom has been something of a white whale for Wall Street in recent years, with predictions for a takeover surge coming like clockwork. This year is off to a decent start on that front, but even a year like 2013, with a nearly uninterrupted bull run, failed to inspire the flood of deals anticipated.

According to a note this week from data provider Dealogic, U.S.-targeted M&A volume tipped the scales at $266 billion through mid-February, the highest level to that point since $278.1 billion in 2000 and 12% ahead of last year’s $234 billion pace.

(There’s a caveat in the Dealogic figures though, as the number includes all targeted M&A volume. So two separate bids for Time Warner Cable — the $69.8 billion offer from Comcast the company agreed to in February and a $62.6 billion bid from John Malone’s Charter Communications announced in January – show up in the figures.)

A long-awaited run of mergers would also come at a time when heavyweight investors have a lot of ammunition. Activists like Icahn are in the middle of a string of mostly-successful pushes for corporate change and are taking on ever-bigger companies, demanding boards pull levers ranging from capital return to breakups to, yes, acquisitions.

Nelson Peltz sent a letter to PepsiCo Wednesday reiterating his desire for the company to split its drinks and beverage business, and in his initial pitch for the move last summer the billionaire said the snacks business should merge with Mondelez.

Elsewhere, Credit Suisse analysts suggested Wednesday that Wal-Mart Stores could “jumpstart” a push to add smaller stores to its roster by shelling out a few billion for Family Dollar.

A rallying stock market breeds an appetite for risk, from investors chasing returns or snapping up newly-issued IPOs and from corporations taking the plunge into dealmaking. Even after a shaky start to 2014, the S&P 500 is down just 1% year-to-date and so long as the companies doing the buying see their stock prices rewarded (for the most part) there will be one less hangup to keep cautious executives from opening their wallets.

Follow @SchaeferStreet

Source: Forbes Business

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

China pledges $81 mn financial assistance for Afghanistan
Beijing, Oct 31 (IANS) China Friday pledged to provide non-reimbursable assistance of 500 million yuan (about 81 million dollars) to Afghanistan this year at an international meeting on Afghanistan held here.
 
 
EU seeks talks with Russia over goods duties: WTO
Geneva, Oct 31 (IANS) The European Union (EU) has sought a consultation with Russia over the tariffs the latter imposed on certain agricultural and manufactured goods, the World Trade Organisation (WTO) said Friday.
 
 
Virgin Galactic's spaceship crashes during test flight
Los Angeles, Nov 1 (IANS) A passenger rocket plane developed by Virgin Galactic's crashed Friday after suffering an "in-flight anomaly" during a powered test flight over the US state of California, the company said.
 
 
Bhopal fugitive Warren Anderson is dead (Roundup, Changing dateline)
Washington, Oct 31 (IANS) Warren Anderson, the former CEO of Union Carbide Corp, has died at 92 after living for 30 years under the shadow of the 1984 Bhopal gas tragedy that killed thousands.
 
 
 

Latest from the Network

Three Iraqis arrested on terror charges in Switzerland
Geneva, Nov 1 (IANS) Swiss authorities Friday said they arrested three Iraqi nationals suspected of planning a terrorist attack in Europe. The office of the attorney general of Switzerland said in a statement that the...
Read more on Politics Balla
 
Pakistan repatriates 29 Afghans
Islamabad, Oct 31 (IANS) Pakistan handed over 29 Afghans arrested during a military operation in its northwestern tribal region to Afghan authorities, the army said Friday. The Pakistani security forces had launched a...
Read more on Politics Balla
 
Less than half of Americans support stricter gun laws: Poll
Washington, Oct 31 (IANS) Less than half of Americans said they back tougher gun laws, which is significantly lower than the 58 percent recorded just after the 2012 school shooting in Newtown, Connecticut, that left 20...
Read more on Politics Balla
 
Zimbabwe's main opposition calls for fresh polls again
Harare, Oct 31 (IANS) Zimbabwe's opposition MDC-T party said Friday economic challenges confronting the country could only be resolved if the country holds free and fair polls. MDC-T president Morgan Tsvangirai told...
Read more on Politics Balla
 
Trapped miners confirmed dead: Colombia
Bogota, Oct 31 (IANS/EFE) Twelve workers trapped by a flood inside a coal mine in the northwestern province of Antioquia are dead, Colombian authorities said Friday. "With an inspection we made in the night hours, we...
Read more on Politics Balla
 
10,000 agents searching for missing Mexican students
Mexico City, Oct 31 (IANS/Prensa Latina) The search for the 43 students who disappeared in Iguala, in the Mexican state of Guerrero, continued Friday with participation of 10,000 agents, including federal forces,...
Read more on Politics Balla
 
Unicef wants unimpeded delivery of aid to kids in CAR
Geneva, Oct 31 (IANS) The UN Children's Fund (Unicef) Friday asked for unhampered delivery of humanitarian assistance to children in need of support amid the recent episodes of unrest in Central African Republic (CAR...
Read more on Politics Balla
 
UN calls for inclusive urban development
United Nations, Oct 31 (IANS) UN General Assembly President Sam Kutesa Friday called for an inclusive and sustainable approach for urban development that considers the needs of marginalised groups. Commemorating the...
Read more on Politics Balla
 
Ponzi schemer in US cheats residents of $22 mn, jailed
Washington, Oct 31 (IANS) If you have been one of those approached by some 'known' person for investing in something with an assurance of 'easy money', you may benefit reading about this Ponzi schemer, jailed in the US...
Read more on Politics Balla
 
China pledges $81 mn financial assistance for Afghanistan
Beijing, Oct 31 (IANS) China Friday pledged to provide non-reimbursable assistance of 500 million yuan (about 81 million dollars) to Afghanistan this year at an international meeting on Afghanistan held here. China...
Read more on Politics Balla