We’ve had a flurry of activity in the last several days — which is no surprise considering that corporations are awash with cash and looking for smart ways to reinvest. Some corporations are using that cash for buybacks, while others are hiking up their dividend payments.
I’m a big fan of each of these strategies because they benefit the individual investor, and my palms itch in anticipation of the impact on earnings and the resulting profits. Plus, there’s another very reasonable use for this cash that is becoming very popular right now and making big splashes in the headlines — mergers and acquisitions.
Take a look at some of the latest deals hitting the market:
On May 28, Avago Technology (AVGO) confirmed plans to purchase Broadcom (BRCM) in a $37 billion cash-and-stock deal. Avago will pay $17 billion in cash and about 140 million AVGO stock (about $20 billion). When this deal closes, it will create the most diversified communications company in the semiconductor industry, as Broadcom manufactures chips for tablets and smartphones.
On May 27, Expedia (EXPE) revealed that its shareholders approved the merger of Orbitz (OWW) and Expedia. Expedia and Orbitz had previously announced their plans to merge in February. Expedia will acquire Orbitz for $12 per share, or $1.34 billion. Expedia is also in the process of buying Travelocity for $280 million. Once these mergers are completed, Expedia and Priceline (PCLN) will be the two remaining major players in the online booking industry.
On May 27, Reynolds American (RAI) revealed that it expects to finalize its $27.4 billion acquisition of Lorillard (LO) in June, now that antitrust officials have signed off on the deal. The combined company will bring in more than $11 billion in revenue and $5 billion in operating income each year. Reynolds American is projecting $800 million in annual savings within the first year of the merger. With a 33% market share, Reynolds American will also catch up to Altria (NYSE:MO), the top tobacco company in the U.S.
On May 26, Charter Communications (CHTR) announced plans to buy Time Warner Cable (TWC) for $55.3 billion. Including Time Warner’s debt, this deal is valued at $79 billion. Charter is also looking to Bright House Networks for $10.4 billion. Once these three cable companies are integrated, Charter will be second only to Comcast (CMCSA) in cable and internet.
Last week, AT&T (T) announced that it’s buying Directv (DTV) for $95 per share. The total value of the deal is $67.1 billion, including Directv’s net debt. Three years after the companies are combined, AT&T expects annual costs saving of $1.6 billion. To help appease regulators, AT&T is divesting its interest in America Movil (AMX).
When you own a stock that is involved in a merger or acquisition — or even if your stock has rumors of M&A activity — it can feel like winning the lottery. However, although these companies are high in the headlines now, that doesn’t mean that all these stocks should have been purchased prior to their M&A activities.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
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