3 Takeover Targets to Watch
Sam is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Any investors who were smart enough to buy shares of Leap Wireless on Friday will likely have doubled their money come Monday morning. Wireless giant AT&T has bid $15 per share for Leap -- a big premium over Friday’s $7.98 closing price.
Trying to bet on the next big deal might not be the wisest investment strategy. Still, a company’s potential as an attractive takeover candidate should be factored into its valuation. Time Warner Cable (NYSE: TWC), BlackBerry (NASDAQ: BBRY), and Alexion Pharmaceuticals (NASDAQ: ALXN) are all possible acquisition targets.
John Malone wants Time Warner Cable
John Malone, chairman of Liberty Media, reportedly wants Time Warner Cable. Specifically, he wants to merge Charter Communications with Time Warner. Liberty Media owns 27% of Charter.
Charter is a much smaller company than Time Warner -- both on a market cap ($12.6 billion vs. $33.5 billion) and paid-TV subscriber basis (4 million vs. 12 million). Still, Bloomberg reports Malone is exploring possible bids, and could take on significant debt to do a deal.
Malone seems to be on a quest to consolidate the paid-TV industry. He urged DISH Network to merge with DirecTV, and when it was still for sale, said the cable companies should band together to run Hulu.
Fewer existing paid-TV providers could mean more leverage when it comes to negotiating content costs, which have spiraled out of control in recent years.
Shares of Time Warner Cable are up nearly 20% in the last month, but if Malone makes a bid for the company, further upside is possible.
BlackBerry could help Lenovo get into the mobile business
BlackBerry’s BB10 has seen sluggish adoption, still, the operating system could make the Canadian handset maker a potential takeover target.
Lenovo has been rumored to be interested in BlackBerry in the past, and a deal might make sense. Lenovo is one of the world’s largest PC-makers, but the PC industry is in secular decline.
Increasingly, consumers are forgoing PCs in favor of smartphones and tablets. Lenovo has said it wants to move into smartphones, and buying BlackBerry might help, particularly if it doesn’t want to go with Google’s Android or Microsoft’s Windows Phone.
If a deal was done, it would mimic Hewlett-Packard’s acquisition of Palm. Ultimately, that deal was a failure for HP -- it abandoned Palm’s WebOS, but that doesn't mean Lenovo won't make the same mistake.
I believe that Android and iOS have a fairly strong duopoly in the mobile operating system business, but given Samsung’s continued interest in Tizen, and the development of alternative operating systems like FirefoxOS, not everyone is ready to concede the market to Apple and Google.
Roche is rumored to want Alexion
Shares of Alexion jumped Friday after Bloomberg reported that the company was on Roche’s radar. Roche is said to be seeking financing to buy the company.
The company’s business is largely dependent on a single drug, Soliris, which is used to treat rare diseases. More interesting may be the company’s broader research on autoimmune disorders.
Credit Suisse initiated coverage on Alexion back in May with a Neutral rating. The analysts liked the company’s recent growth, but felt that there were few near-term catalysts to propel shares meaningfully higher.
But, a takeover is quite a potent catalyst. Credit Suisse said the company was worth $110 per share -- interest from Roche would justify a higher valuation.
Investing in takeover targets
Before AT&T made its bid for Leap, analysts at Macquarie had predicted that the company would be acquired -- anyone who acted on that call looks like a genius today. Still, more deals are rumored than actually come to fruition.
Investors should never buy a stock simply because they hope it will be acquired. However, if a company has value as an acquisition, then its business must have some value. Being a takeover target might not be reason enough to own a stock, but it should bolster the existing bull case.
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