Global mergers and acquisitions (M&A) activity has heated up
considerably in 2014. Consolidated deal value as of Jun 26, 2014
has increased 75% year over year to $1.75 trillion, as per Thomson
Reuters data. This marks the highest level since deal value
reaching $2.28 trillion in 2007.
Have you been able to cash in on the strong trend by investing in
any of the companies that got acquired? If not, you still have the
opportunity to earn a huge acquisition premium by betting on stocks
that are the next takeover targets.
Before we suggest three such stocks that might get acquisition bids
(according to rumors), let's see what is happening in the M&A
What Caused the M&A Spurt?
Analysts had predicted 2014 to be a year of M&A activity
because of the presence of large amounts of cash on corporate
balance sheets, favorable credit markets, low interest rates, and
strength in the stock market. As internal growth remained elusive,
mergers and acquisitions were the next best route to get bigger. As
organic means remained elusive, mergers and acquisitions were the
next best route to achieve growth.
Moreover, shareholders extended full support to big acquisitions in
order to make their company gain market share amid the rampant
consolidation. As per Reuters, shares of both the buyer and seller
companies rose significantly following any merger and acquisition
Remarkable Deals of 1H-2014
Some of the most notable deals include
) $19.0 billion buyout of WhatsApp and
) acquisition of Forest Laboratories for $25.0 billion. Further,
), the world's largest medical devices maker, acquired its Irish
rival Covidien Public Limited Company for $42.9 billion.
The telecom industry also witnessed two mega bids --
) $45.0 billion offer for rival
Time Warner Cable Inc.
) $48.5 billion bid for DIRECTV. Notably, both the deals have
hit regulatory hurdles.
) have been on acquiring spree. These two tech giants have
primarily acquired lucrative start ups.
Overseas, Holcim of Switzerland and Lafarge of France merged to
create the one of the world's biggest cement production company.
One of this year's mega speculations is Apple's rumored acquisition
Tesla Motors, Inc.
). The rumors resulted from a report by The San Francisco Chronicle
that Apple's mergers and acquisition chief, Adrian Perica, had a
meeting with Tesla CEO Elon Musk in Cupertino, CA, in the spring of
Speculations are also rife about a merger between the third and
fourth largest mobile network operators in the U.S --
T-Mobile US, Inc.
Unsuccessful Mega Proposals
The mega failure so far this year is the falling apart of the deal
). Pfizer had offered $117 billion to takeover its British rival.
However, AstraZeneca rejected the grossly discounted bid.
AstraZeneca also raised certain concerns regarding the transaction
structure and risks related to the proposed inversion structure
(Pfizer's intention to redomicile to the UK for tax purposes).
Two other pharma companies, Valeant Pharmaceuticals and botox maker
), are also stuck in a similar situation as Allergan keep thwarting
Valeant's $53 billion acquisition proposal.
3 Potential Takeover Targets
Analysts remain confident of continued strong M&A activity in
the second half of the year. So investing in the prospective
takeover targets could offer you a handsome return.
Based on market rumors, we have zeroed in on 3 stocks that stand a
chance of receiving at least one tender offer in the upcoming days.
Moreover, we have selected those that have a solid earnings run
over the trailing four quarters and a favorable Zacks Rank. Even if
these stocks do not offer a takeover gain, their earrings strength
and favorable Zacks Rank should translate into decent price
Citrix Systems, Inc.
): This Zacks Rank #1 (Strong Buy) stock is a business software and
services company based in Fort Lauderdale, FL. The company is
working on three broad fast growing markets namely Desktop
virtualization, Cloud infrastructure and networking, and
Collaboration and sharing. The company reported revenues of nearly
$3 billion in 2013 and is confident of another 8%-10% increase in
revenues in 2014. The company has beaten the Zacks Consensus
Estimate in the last four quarters by an average of 13.6%.
Market speculates Citrix as an attractive acquisition target for
any tech company that is looking for opportunities to expand its
operations in the lucrative arena of Desktop virtualization and
Alaska Air Group, Inc.
): Based in Seattle, WA, this regional airlines company boasts a
good West Coast route network and has a fuel efficient fleet.
Moreover, this Zacks Rank #2 (Buy) stock has displayed high returns
and profitability for some time now. The company has beaten the
Zacks Consensus Estimate in the trailing four quarters by an
average of 4.3%.
All these positive factors make it an interesting acquisition
Delta Air Lines Inc.
), which is trying to increase its presence on the West Coast.
Speculations about a deal between the two airline companies having
been doing the rounds for a sustained period.
Devon Energy Corporation
): Recently, markets have started buzzing with the rumor of Devon
Energy being acquired by
). We believe that this is seemingly huge but definitely not
impossible, with widespread consolidations taking place in the oil
and natural gas sector. We have to wait and see how credible these
rumors prove to be in the coming days.
Nevertheless, Devon Energy -- with its diversified portfolio,
mostly including unconventional sources -- has significant
long-term growth potential. The company has shown capital
discipline by rationally allocating resources to projects that are
vital for its future growth and trying to live within generated
cash flows. Devon's near-term focus is on the oil and liquids-rich
opportunities that exist within its balanced portfolio of
properties. The company's focus on E&P activities will help
boost liquid production in the future.
This was well reflected in the company's strong financial
performance. This Zacks Rank #3 (Hold) stock has beaten the Zacks
Consensus Estimate in the trailing four quarters by an average of
It's a Safe Play
Don't wait to pull the trigger -- these stocks should not
disappoint even if they don't get takeover bids. Actually, their
favorable Zacks Rank is an indicator of their decent performance in
the near term, and the takeover potential may add a handsome bonus
to your return.
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