M&A: Cash Stockpiling; Prospective Buyers and Targets in Healthcare, Tech, and
Basic Materials
M&A generally is an early indicator in the beginning of a new bull market and right now
the actions are necessary for cost savings through synergies, and companies have cut
dividends to the point where if earnings pick up, there will be a lot of cash available to
explore growth via acquisitions. I will leave out Financial stocks for this analysis as there
is way too much going on behind the scenes to get a solid read on deals that could
happen.
The below analysis will take into account various significant features companies looking
to be buyers exhibit, as well as prospective targets based on fundamental analysis and
also activity in the options market. I will not disclose the exact criteria used to find these
takeover candidates, but will say I have accurately forecasted M&A in the past year
(some did not go through or are still in process) including Schering Plough (SGP), Omrix
Biopharmaceutical (OMRI), Invitrogen (IVGN), Mentor Corp (MNT), TurboChef
(OVEN), Terra Industries (TRA), Corn Products (CPO), Advanced Medical (EYE),
Alladdin Knowledge (ALDN), Transmeta (TMTA),Sovereign Bancorp (SOV), UST
(UST) and Anheuser Busch (BUD).
I will include a “chatter” section in each industry highlighting some names that have been
mentioned on trading floors in the past 2 months with takeover chatter, and also a
wildcard section with companies that could be either a buyer or seller.
Healthcare, Medical Equipment, and Bio Technology
Buyers: Johnson and Johnson (JNJ), Sanofi Aventis (SNY), Novartis (NVS), and Astra
Zeneca (AZN) all have more than $5B in cash with ample abilities to raise cash in the
bond market at fair rates. These companies are looking to make deals in the Bio Tech
industry to expand growth and generate new revenue streams
Top Target: Somanetics (SMTS) is a medical device maker for blood oxygen
monitoring and trades only 4.75x cash and 10.7c free cash flow, while continuing to
expand growth and margins. With no debt on the balance sheet, shares are very cheap
and make for an easy deal.
Potential Targets: Allergan (AGN), Forest Labs (FRX), Valeant Pharmaceutical (VRX),
Osiris Therapeutics (OSIR), Isis Pharmaceuticals (ISIS), Natus Medical (BABY),
Hologic (HOLX), Charles River (CRL), Auxilium Pharmaceutical (AUXL), Regeneron
Pharmaceuticals (REGN), Amag Pharmaceutical (AMAG), Savient Pharmaceutical
(SVNT)
Chatter: OSI Pharmaceutical (OSIP), Vertex Pharmaceutical (VRTX), Bristol Myers
(BMY), King Pharmaceutical (KG), Zimmer Holdings (ZMH), Alcon (ACL), Elan Corp
(ELN), Amylin (AMLN), Crucell (CRXL), Intuitive Surgical (ISRG), Acorda
Therapeutics (ACOR), Biogen (BIIB), Cougar (CGRP), Zoll Medical (ZOLL)
Wildcard: Eli Lilly (LLY)
Transports
Buyers: LandStar (LSTR), Union Pacific (UNP), CSX Corp (CSX), Continental (CAL),
FedEx (FDX)
Top Target: Marten Transports (MRTN) is a long0haul trucker based out Wisconsin
with a market-cap of less than $400 million and nearly any debt. Truckers will need to
consolidate to save on costs, as shipment demand dwindles the truckers must operate
closer to full capacity, and save on transport costs will oil rebounding off lows as well as
increasing competition from rails as a means of transport.
Potential Targets: Bristow Group (BRS), Hub Group (HUBG), UAL Corp (UAUA),
American Railcar (ARII), Seacor Holdings (CKH), Ship Finance Ltd. (SFL), ConWay
(CNW)
Chatter: Kansas City Southern (KSU)
Wildcard: Norfolk Southern (NSC)
Industrials
Buyers: ABB Limited (ABB), Honeywell (HON), Eaton (ETN), Foster Wheeler (FWLT)
Top Target: AGCO (AG) is an agricultural equipment manufacturer that has very stable
fundamentals with plenty of growth prospects. Shares trade just 4.5x trailing earnings,
3.3x cash, and a 13% discount to book value for a hard asset company. Equipment for
agriculture will always be in demand, and AGCO has proven to be a leader in the group
with strong name brands that could interest a buyer.
Potential Targets: Parker Hannifin (PH), Rockwell Automation (ROK), McDermott
(MDR), Manitowoc (MTW), Chicago Bridge (CBI), USG Corp (USG), AZZ Corp (AZZ)
Chatter: Energizer (ENR), Terex (TEX), Texas Industries (TXI)
Wildcard: Goodrich (GR) and Raytheon (RTN)
Materials
Oil & Gas
Buyers: Exxon Mobil (XOM), Statoil (STO), Noble (NE), Apache (APA), Schlumberger
(SLB), Hess (HES)
Top Target: Unit Corp (UNT) has seen some recent unusual calla activity, and the oil
and gas driller trades less than 7x earnings, has minimal debt, and has recurring revenue
that is attractive to a buyer.
Potential Targets: Ensco (ESV), Range Resources (RRC), XTO Energy (XTO),
Cimarex Energy (XEC), Penn Virginia (PVA), Cameron Int’l (CAM), Helix Energy
(HLX), Williams Company (WMB)
Chatter: Frontier Oil (FTO), Pride International (PDE), Chesapeake (CHK), Nexen
(NXY), Cabot Oil (COG), Forest Oil (FST), Quicksilver Resources (KWK), Weatherford
(WFT), Tesoro (TSO), Western Refining (WNR)
Wildcard: Encana (ECA)
Agriculture
Buyers: Potash (POT) and Private Equity
Top Target: Mosaic (MOS) is a fast growing stock in this industry with cheap valuation
and an abundance of cash that could attract private equity to come in and purchase the
company for a bargain.
Potential Targets: Terra Nitrogen (TNH)
Chatter: Terra (TRA) and CF Industries (CF) are involved with takeover offers,
Compass Minerals (CMP)
Wildcard: Syngenta (SYT)
Chemicals
Buyers: Dupont (DD), Albemarle (ALB), Sigma Aldrich (SIAL)
Top Target: Celanese (CE) is an industrial chemical producer trading 1/5 of what it was
9 months ago at $11 per share, and has $4.75 per share in cash, while maintaining strong
earnings power. Debt is a major concern with Celanese, but a buyer could be willing to
use that in a leveraged buyout.
Potential Targets: Eastman Chemical (EMN), Rockwood Holdings (ROC), OM Group
(OMG)
Chatter: Ashland (ASH)
Industrial Metals
Buyers: PeaBody Energy (BTU), BHP Billiton (BHP)
Top Target: RTI Int’l Metals (RTI) trades at less than the $12.32 in cash per share on the
books while having a debt to equity ratio of 0.4, and projects to earn more than $1.55
next year. In the niche titanium mill industry, a buyer could look to expand into this
segment of business.
Potential Targets: Cliff Natural (CLF), Walters (WLT), Alpha Natural (ANR)
Chatter: Allegheny Tech (ATI), Titanium Metals (TIE)
Steel
Buyers: Rio Tinto (RTP), Posco (PKX), Nucor (NUE)
Top Target: Ternium (TX) is a steel producer based in Luxembourg and traded 2.4x
trailing earnings, 1.16x cash, and at a 71% discount to book value.
Potential Targets: Tenaris (TS), Carpenter Resources (CRS)
Chatter: AK Steel (AKS), Steel Dynamics (STLD), Gerdau (GGB), Commercial Metals
(CMC)
Gold Miners
Buyers: Barrick Gold (ABX), Newmont Mining (NEM), Agnico Eagle (AEM)
Top Target: Yamana Gold (AUY) has rights to some of the most coveted mining
projects in the world and could be a targeted company.
Potential Targets: Eldorado Gold (EGO), Seabridge Gold (SA)
Chatter: Harmony (HMY)
Technology
Buyers: Microsoft (MSFT), Oracle (ORCL), Cisco (CSCO), Google (GOOG), SAP
(SAP), Hewlett Packard (HPQ), Qualcomm (QCOM), Nokia (NOK), Texas Instruments
(TXN)
Top Target: Nice Systems (NICE) is an Israeli professional software producer that as no
debt at $5.51 in cash per share on the books. Forecasts are also calling for substantial
growth in earnings and revenues.
Potential Targets: Adobe (ADBE), Juniper (JNPR), Cognizant (CTSH), Maxim
Integrated (MXIM), Cree Inc (CREE), Logitech (LOGI), Arris Group (ARRS), Zoran
(ZRAN), Commvault (CVLT), NetLogic (NETL), Omnivision (OVTI), I2 Tech (ITWO)
Chatter: Expedia (EXPE), SanDisk (SNDK), National Semi (NSM), Nvidia (NVDA),
RiverBed (RVBD), Value Click (VCLK), Lexmark (LXK), Marvell Tech (MRVL),
InterDigital (IDCC), Activision (ATVI), Electronic Arts (ERTS), NetApp (NTAP),
Salesforce (CRM), Akamai (AKAM), Ciena (CIEN), Axsys Tech (AXYS)