Follow the Money as Buyout Activity Heats up
Weak stock prices and loads of idle cash spell one result:activity. In July, a number of rumored deals have either progressed — or even been consummated — and there’s plenty more to come. Here’s a quick recap of some possible deals, and how they’ve played out.
GeoEye finds a match
In June, I noted that satellite-imaging firm GeoEye (Nasdaq: GEOY) had found itself in a hole after losing a key government contract extension.
#-ad_banner-#Withat $14.50, I noted that GeoEye’s biggest backer, Cerberus Capital’s Stephen Feinberg, would love to find a buyer for his losing investment, noting that rival DigitalGlobe (NYSE: DGI) could afford to make a $20-a-share . Well, that’s just what happened and are up a heady 35% in just one month.
Digital generation confirms the rumor
On Friday, July 13, I weighed in on rumors that Digital Generation (Nasdaq: DGIT) was up for sale.
shares, but don’t be surprised if a $20 emerges later this summer.initially cooled a bit, but made a quick move toward the $12-mark on July 17, when management confirmed the rumors. Of course, a tough backdrop has again cooled off these
Christopher & Banks wants more
On Wednesday, July 11, I also noted that private firm Aria Partners offered to pay $1.75 a share to women’s retailer Christopher & Banks (NYSE: CBK).
Thatwas rebuffed, as the retailer subsequently lined up a new credit line that brings more financial flexibility. At this point, the retailer is under less pressure to sell and has more time to fix operations. It’s up to Aria Partners to decide whether it’s sensible to make a higher bid. Might $2.50 a share get it done? Management might want closer to $3.50 a share, which represents tangible .
Christopher & Banks has posted weak results during the past few years, due in part to the slowand in part to poor merchandising decisions. Yet management knows that a better merchandise mix, along with a perkier , would restore some of this retailer’s lost luster — and its fallen .
Who else is in play?
Merger and (M&A) activity tends to run around broad themes. One of them involves the pursuit of oil and gas assets in North America by foreign buyers. Major Chinese energy firms have sought to make major deals in the United States, but have been rebuffed for national security reasons. So they’re turning to Canada.
On Monday, July 23, China’s Cnooc said it would pay a hefty $15 billion for Canada’s Nexen (NYSE: NXY). Shares opened up a cool 50% on Monday morning. Analysts at Goldman Sachs had an inkling that a deal may be coming. In a July 8 note to clients, they suggested that Nexen and Cenovus Energy (NYSE: CVE) might get a buyout offer.
Will Cenovus be next? The Alberta-based energy firm also has many of the shale assets that Chinese buyers covet. “[Cenovus is] the lowest cost oil sands producer with the ability to grow oil production 14% per year to 2021,” notes Merrill Lynch as Canada builds an energy pipeline to the Pacific Coast, much of the output of these oil sands could make their way to China.
Morningstar’s analysts say MEG Energy could be the next buyout target. (Shares trade in Canada under the ticker MEG if you have access to Canadian equities). They note that MEG, “has complementary oil sands assets, investments in pipeline and storage terminals, and a major shareholder (private-equity firm Warburg Pincus, with a 23% interest), which we suspect will eventually need to liquidate its stake in the firm.”
Auto parts retailers in play
Also early this week, rumors circulated that auto parts retailer Carquest (which is owned by privately-held Genuine Parts Company (NYSE: GPC) will soon be put up for sale for a purported $2 billion. Any private equity (PE) firms that want to buy into the space can get a lower price by acquiring rival Pep Boys (NYSE: PBY). PE firm The Gores Group planned to buy Pep Boys for nearly $800 million earlier this year. But Gores eventually changed its mind, creating one of the more unusual stock charts you’ll find.
In the wake of the botched deal, Pep Boys’ is now just $500 million — one-fourth of what Carquest is reportedly expected to fetch. If a deal for Carquest is consummated, then expect investors to pivot back to Pep Boys, as this industry could move toward a phase of .
Risks to Consider: In an uncertain
Action to Take –> is often a time when companies agree on a deal. Both parties have had a chance to size each other up, and typically await and see what the quarter will look like before with their talks. Once a deal is announced, you may want to quickly look at similar companies that may get snapped up, as M&A activity often extends across a sector once it gets underway.