Mergers Heat Up Between Haves, Have-Nots

by The Investment U Research Team

We spotlighted Pulte Homes (NYSE: PHM) along with a few other homebuilders yesterday as signs that the housing market is starting to move again. This morning we were greeted with the news that Pulte is buying out Centex (NYSE: CTX) for $10.50 a share – a 38% premium to it close yesterday.

Moving again indeed.

We’ve seen a number of mergers in the past quarter: Pfizer’s (NYSE: PFE) takeover of Wyeth (NYSE: WYE), Merck & Co’s (NYSE: MRK) merger with Schering-Plough (NYSE: SGP) and NRG Energy’s (NYSE: NRG) takeover of Calpine Corp (NYSE: CPN).

IBM (NYSE: IBM) pulled out of a planned merger on Monday after Sun Microsystem’s (Nasdaq: JAVA) board rejected its formal offer. It was a better deal for IBM, with Sun’s cash reserves and cheap asset prices.

But this doesn’t mean that we won’t be seeing large merger activity stop over the next few quarters. In fact, we’ll probably see a resurgence of them as the credit markets start to open up and the economics become clear in many industries.

The recession has created an interesting situation where there is a significant difference between the haves (those companies who have weathered the storm and are sitting on large cash reserves) and the have-nots, those that haven’t – and look appetizing for takeovers.

Companies with stable cash reserves are going to look at their weaker competition and see cheap ways to buy market share. And like the buyouts above, this activity can be an instant windfall for investors who get in early.

Companies mentioned in this article: PHM, CTX, PFE, WYE, MRK, SGP, NRG, CPN, IBM and JAVA.

• M&A = Movement & Action
• Look Who Just Showed Up to the Takeover Party
• The Coming Takeover Boom: 3 Sectors Ripe for Mergers & Acquisitions

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One Response to “Mergers Heat Up Between Haves, Have-Nots”

1. Tony Dee Says:
   April 10th, 2009 at 11:57 am

   I would like my fat check on May 15 thanks Tony

   Reply

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