There are few things in the stock market as exciting as a mergers and acquisitions (M&A) announcement, which refers in this case to a consolidation of publicly-held companies.
Shares can soar or dive in price depending on how the market views the news. Investors try to gauge how effectively the combined company will be able to address its market, and whether the cost of the acquisition was worth it.
There are always multiple M&A opportunities pending, but at the moment there are only a few that everyday investors need to be keeping an eye on.
Today's Most Important M&A Deals
1. Bass Pro Shops' Acquisition Of Cabela's (NYSE: CAB)
As an avid fisherman, I know both these firms and was quite surprised to learn of the buy-out.
The deal was approved by the FTC in early July and includes Cabela's stores, website, and catalog business.
There remains a hurdle to the deal closing. Cabela's banking unit is agreed to be sold to Synovus Financial (NYSE: SNV) and credit card assets to Capital One (NYSE: COF) in a separate transaction. However, the sale must be approved by the Federal Reserve before the deal closing deadline of October 3, 2017. Bass Pro Shops can back out of the deal at any time before this date.
Cabela's stock is presently trading in the $59 zone due to the uncertainty. But should this deal go through, the stock could see significant gains.
2. Rite Aid (NYSE: RAD) And Walgreens Boots Alliance (Nasdaq: WBA) Merger
First mentioned in October 2015, this merger has been both the darling and bane of investors. It seems every move leads to extensive FTC negotiations and price changes.
A compromise was finally reached in June 2017 that allows Walgreens to purchase 50% of Rite Aid stores, distribution, and inventory for an all-cash price of just over $5 billion.
The agreement also gives Rite Aid the right to purchase generic drugs from a Walgreen's affiliate at cost for the next decade. Rite Aid will help compensate Walgreens by providing three years of certain transition services.
Despite this, the deal still remains subject to regulatory and anti-trust approvals. It is also important to note that Walgreen's will have to pay a $325 million cash termination fee for failing to acquire 100% of Rite Aid.
Walgreens is presently trading in the $80 per share zone, down about 4% on the year. At the same time, Rite Aid's stock is trading in the $2.50 per share area and is sharply lower by close to 70% in 2017.
3. Dow Chemical (NYSE: DOW) And E.I. Du Pont De Nemours (NYSE: DD), The "Merger Of Equals"
Called a "merger of equals," this union has been in the works since 2015 when the companies agreed to combine and then spin off into three independent firms. The three spinoffs will be agricultural, material science, and specialty products.
Merger approvals have been granted internationally, including in the United States, but are tied to the sale of segments of each company. The split is scheduled to happen in the fall of 2017 with the breakup planned for a year or two after.
Activist investor Dan Loeb of Third Point Management has ramped up pressure for the companies to review their post-merger strategy. He thinks the shareholders will be better served if the companies break into six separate firms rather than three. Loeb has postulated that his plan will lead to an astounding $20 billion windfall.
The merger activity has benefited both giant companies this year. Both are trading higher by roughly 15% since the start of 2017.
4. Monsanto (NYSE: MON) And Bayer AG (NYSE: BAYRY) Merger
This deal continues to experience headwinds, with regulatory approval pending for Bayer to buy out Monsanto at $128 per share. The firms are presently seeking anti-trust approval in the United States and have not filed yet in the EU.
The merger has the goal to create an industry-leading agricultural giant. Together, the combined companies will have leading innovation capabilities and R&D technology platforms, with an annual pro-forma R&D budget of approximately EUR 2.5 billion.
Right now, Monsanto is trading just over $117 per share, higher by 11% this year, while Bayer's shares are posting at $128, up 24% so far in 2017.
5. AT&T's (NYSE: T) Acquisition Of Time Warner (NYSE: TWX)
The monster $85 billion deal remains uncertain as the Department of Justice continues to investigate anti-trust issues. Despite the obvious synergies and shareholder benefits, the buyout faces massive political headwinds, with even President Trump voicing his disapproval.
AT&T still fully expects the merger review process to be completed by the end of the year. It has spent over $8 million and hired 27 lobbying firms to help facilitate government approval.
Presently, AT&T is trading in the $36 per share area, down nearly 15% on the year, and Time Warner is also underperforming with only around a 3% gain in 2017.
Risks To Consider: Investing in pending mergers and acquisitions can be very lucrative, but it is also extremely risky. Everything can change at a moment's notice, sending a steady price trend into disarray. An entire strategy known as Merger Arbitrage has been developed to help manage this risk.
M&A investing is only suitable for experienced risk embracing investors.
Action To Take: Monitor the pending acquisitions, and experienced investors can consider diversifying into merger candidates.
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