Summer Mergers and Acquisitions Worth Watching
Karen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
IPOs may be dead in the water, but mergers and acquisitions are still going strong. Among this summer’s mergers and acquisitions are three which stand out from the others due to their growth and profit potential.
Dell’s (NASDAQ: DELL) PC market share has been hit hard by notebook and tablet sales. Their PC sales have declined approximately 27% over the past 12 months, and Q1 2012 profit dropped 33% to $635 million. Rather than continue competing in an ever-shrinking market against Hewlett Packard and IBM, Dell has turned their focus to the lucrative world of corporate information technology.
Quest Software (NASDAQ: QSFT), acquired for $2.4 billion, brings over 100,000 customers in 23 countries and $857 million in global revenue to Dell. Quest Software significantly increases Dell’s cloud computing presence through database management, data protection and backup, system and application performance management and simplified security. The two companies have partnered together for over 10 years, and Quest’s integration will increase Dell’s presence as a corporate IT provider as the latter continues to untangle from PC production.
Dell’s stock currently trades in the $12.00-12.70 range. Thomas Reuters projects a median stock price of $16.00, and a high of $19.50.
Another acquisition that bears close watching is WellPoint’s (NYSE: WLP) purchase of rival Amerigroup (NYSE: AGP) for $4.46 billion. Betting big on President Obama’s Medicaid Expansion program, WellPoint paid a 43% premium, or $92.00 per share, to emerge as the largest private Medicaid benefits provider in the U.S.
But the deal won’t be closed until Amerigroup shareholders vote to approve the acquisition which should happen in first quarter 2013. If approved, the acquisition will add more than $1.00 per share to WellPoint’s earnings by 2015.
There are, however, two major risks that may weigh heavily on WellPoint’s acquisition. Mitt Romney vows to overturn Obamacare if elected and the recent Supreme Court decision allows individual states to opt out of the Medicaid Expansion program. Investors may want to wait until after the presidential election before deciding to include WellPoint in their portfolio.
Bristol-Myers Squibb (NYSE: BMY) is adding to its diabetes drugs portfolio through the purchase of diabetes drug maker Amylin Pharmaceuticals as announced on June 20, 2012. Bristol-Myers paid a cash price of $31 a share, which amounted to a 9.9% premium, making the deal worth about $5 billion. Under the terms, Bristol-Myers also took on Amylin’s payment obligation to Eli Lilly and other net debt obligations which made the acquisition worth closer to $7 billion. Both company boards have already approved the acquisition.
Through this purchase, Bristol-Myers gains access to Bydureon and Symlin, two of Amylin’s diabetes drugs already FDA approved. Bristol-Myers, with the aid of partner AstraZeneca, plans to develop Amylin’s drug portfolio in the near future.
All three companies discussed above have selected acquisition candidates designed to substantially enhance their existing market share and financial strength. Savvy investors may want to watch these companies to determine if their performance warrants future purchase.
kprogers has no positions in the stocks mentioned above. The Motley Fool owns shares of WellPoint. Motley Fool newsletter services recommend Amerigroup and WellPoint. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.