Merger Monday. I remember hearing that term all the time in the 1990s. It seemed like every first day of the week, you’d wake up to news of another multi-million — or multi-billion — dollar deal!
Well, those days are back — and the deals are bigger than ever. We just learned that Medtronic (Weiss Ratings: MDT, A) is buying Covidien (Weiss Ratings: COV, B+) for a whopping $42.9 billion, or roughly $93.22 a share. That’s a 29 percent premium to where Covidien was trading at the end of last week.
The move will bulk up the second-largest maker of medical devices. But the deal also gives Minneapolis-based Medtronic the Irish address and domicile of Covidien, allowing the firm to avoid U.S. taxes when investing billions of dollars in cash the combined firm will have on its balance sheet.
“As an investor, you can make a nice pile of money by being in the right stocks on any given Monday morning.”
I told you in mid-May that many U.S. firms are seeking overseas deals for tax reasons. I also wrote last week about how some legislators are trying to incentivize corporations to repatriate their overseas cash hoards. My sense is that we’re going to see a critical mass of deals that eventually forces Congress’ hands, especially as the price tags for these transactions spirals ever higher.
Speaking of deals, Medtronic-Covidien was far from the only one we just learned about. Williams Partners LP (Weiss Ratings: WPZ, C+) is also buying a 50 percent stake in Access Midstream Partners LP (Weiss Ratings: ACMP, B) as part of a $6 billion energy sector merger.
The deal will increase Williams’ heft in the business of transporting and storing oil, gas, and related energy products. You probably recall that I’ve been very bullish on the domestic energy industry, and the energy transportation sector in particular. If we see deal activity ramp up, it’ll only add upside pressure on these kinds of stocks.
|Corporations are taking advantage of rock-bottom interest rates and excessively easy corporate lending standards to go on a buying spree.|
Even the technology sector is getting into the game. Chipmaker SanDisk (Weiss Ratings: SNDK, A-) is buying Fusion-io (Weiss Ratings: FIO, D+) for $1.1 billion, or $11.25 a share. That will increase its exposure to the flash storage chip business.
Plus, Level 3 Communications (Weiss Ratings: LVLT, C) is buying TW Telecom (Weiss Ratings: TWTC, C) for around $5.6 billion, or $40.86 a share. The firms both provide voice, data, and Internet access services, allowing Level 3 to bulk up through the transaction.
Bottom line? “Deal Fever” is sweeping through multiple industries in the U.S.
Corporations are taking advantage of rock-bottom interest rates and excessively easy corporate lending standards to go on a buying spree, while private equity firms who bought companies on the cheap in the past few years are looking to cash out.
As an investor, you can make a nice pile of money by being in the right stocks on any given Monday morning. My favorite strategy is to focus on industries like health care, domestic energy, aerospace and the like that are swept up in their own sector bull markets.
Then I like to find the best stocks in those sectors using the Weiss Ratings, and my own personal analysis — and fire off buy recommendations like those in my new special report “Six Mega Market Winners for 2014 — and Beyond.” That way, you’re in a good position to make money from strong underlying trends. And if one of your stocks happens to catch a bid? Well, that’s just “gravy” on top!
So what’s your favorite strategy to profit from the boom in mergers and acquisitions? Are there particular sectors that you think are going to see more M&A than others? Or less? Have you ever woken up on Monday morning to a big spike in the price of one of your stocks? Share your experiences and insight right here.
|OUR READERS SPEAK|
The chaos in Iraq inspired many of you to weigh in on the causes and consequences of the latest Middle East tension.
Reader Walter S.said: “We had no business in Iraq to begin with under Presidents Bush senior and his son. We need to chalk up all the investments as bad investment and write off the losses to poor judgments.
“The world political-economic scene is changing rapidly from the British and French meddling in the Middle East during and after World War I. They rewrote the old map, splitting people into disagreeable factions, like Iraq, that have eventually exploded into the turmoil we now have.”
Reader K. O’C. agreed, suggesting that any attempt at further nation-building will likely fail. The comments:
“Why did the U.S. ever think they could implement a democratic style of government in Iraq to begin with? It is totally foreign to them and they would revert back to what they’re accustomed to as soon as the U.S. troops left, which is exactly what has happened. They need to re-establish their own form of government, and if that involves a civil war, then so be it.”
Meanwhile, Reader Norman raised the prospect of a broadening of the conflict should Iran get deeper enmeshed in the Iraqi turmoil. His comments:
“The media have noted the issue with Iraq oil if the ISIS takes over Iraq. And they have noted that Iran is sending troops to help. What was missed is what would happen if Iran sends enough troops to take over Iraq itself.
“Saudi Arabia would not be too happy having Iran as a direct neighbor. If Iran is occupying Iraq, it would be an easy step for it to occupy Syria as well. Israel would not be too happy either if Iran were a direct neighbor. Food for thought.”
It’s impossible to say how these fast-moving events will shake out. But if you have any insights to share … as well as thoughts on their investment implications … definitely hop over to the comment section to post them!
|OTHER DEVELOPMENTS OF THE DAY|
Today’s economic data dump included readings on industrial production (+0.6 percent in May, better than the 0.5 percent average forecast from economists polled by Briefing.com) … the Empire Manufacturing Index (19.3, better than the 12.8 forecast) … and the National Association of Home Builders housing market index (49, better than the 46 forecast).
But all of the good feelings from that strong economic data evaporated after the International Monetary Fund (IMF) cut its forecast for 2014 economic growth in the U.S. The IMF now expects 2 percent growth, down from an earlier estimate of 2.8 percent.
Meanwhile in Iraq, the Iraqi army and militant ISIS forces are battling for control of key cities in the country’s north and northwest. ISIS reportedly captured Tal Afar, a city with 200,000 people, earlier today. The U.S. embassy is also reducing staff as a precautionary step.
Reminder: You can let me know what you think by putting your comments here.
Until next time,