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Follow the Money as Buyout Activity Heats up
7/24/2012 10:00:00 AM
By: David Sterman
Weak stock prices and loads of idle cash spell one result:Buyout 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.
Withshares at $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-shareoffer . Well, that's just what happened andshares are up a heady 35% in just one month.
Shares initially cooled a bit, but made a quick move toward the $12-mark on July 17, when management confirmed the rumors. Of course, a toughmarket backdrop has again cooled off these shares , but don't be surprised if a $20buyout offer emerges later this summer.
Thatoffer was 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 tangiblebook value .
Christopher & Banks has posted weak results during the past few years, due in part to the sloweconomy and in part to poor merchandising decisions. Yet management knows that a better merchandise mix, along with a perkiereconomy , would restore some of this retailer's lost luster -- and its fallenmarket value .
Who else is in play?
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
Risks to Consider:
In an uncertaineconomy , companies tend to move a bit more
slowly, so M&A action may not truly heat up until the near-term
economic andmarket headwinds abate.
David Sterman does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.