Yesterday was 'Merger Monday' which is a phenomenon that has been absent for some time but creeping back into normalcy in recent weeks. Companies are flush with cash and looking for ways to deploy it in order to increase shareholder value. Our guess is that we see a flurry of acquisitions as the year closes out, however we are not buyers of rumored takeout candidates. That is not the way to play the game, simply buy great companies with competent management and good business plans moving forward.
We have economic news out today, and it is as follows (data set - consensus):
Case Schiller 20-City Index - -0.3%
Consumer Confidence - 65.7
Looking at Asian markets we see markets are mixed:
All Ordinaries - up 0.32%
Shanghai Composite - up 0.85%
Nikkei 225 - down 0.57%
NZSE 50 - up 0.16%
Seoul Composite - down 0.08%
In Europe markets are lower:
CAC 40 - down 0.57%
DAX - down 0.43%
FTSE 100 - down 0.09%
OSE - down 0.04%
For those not paying attention, Arena Pharmaceuticals (ARNA) has been on the move again and is approaching the $10/share level which is the upper bracket of where we recommend buying shares. Volume remains strong here with 22.2 million shares traded yesterday and the stock was one of the bigger gainers as shares rose $0.68 (7.87%) to close at $9.32/share. We remain bullish of shares and think that $15-20/share by year-end is a reasonable assumption
Hudson City Bancorp (HCBK) saw shares rise $1.01 (15.68%) to close at $7.45/share on volume of 85.4 million shares after the company announced that they had reached a deal with M&T to be acquired. This is one of the better run banks out there, so M&T is getting a great franchise with a pristine balance sheet. It is our opinion that we shall see more of these types of acquisitions as the regional and state players look to get bigger in order to compete in the new banking landscape which has been drastically altered by the financial crisis and new regulations.
Which brings us to Regions Financial (RF) which is one of our more favorite regional players and a bank that could be on the verge of engaging on buying others. Granted, the company does have some problems of its own but there are many synergies to be realized from any acquisition in the sector as you integrate those institutions into your business. The company has experience over the past few years repairing a balance sheet too, so that really opens up the possibility that they could purchase a competitor in just about any condition. This is all an assumption, but it makes sense and unless they do it at the right price with a deal that makes sense, then our price targets would have to be revised lower in the short-term. The stock hit a new 52-week high yesterday before falling lower, which was probably before investors realized that this probably is not a takeover candidate.
Apple (AAPL) set another 52-week high on the news that they won a court battle in the US against rival Samsung. Shares rose $12.46 (1.88%) to close at $675.68 on volume of 15.2 million. This was something we had not factored into our assumptions for the year or future as we attempted to be conservative and we shall continue to leave it out of our assumptions as it is hard to say what the future holds for Apple's legal proceedings. We had discussed that we would have a new price target out after spending some time to look over the situation, and this morning we do in fact have a number which will probably not be too popular. We think that with the products rumored to be coming out in the near future and past trends that it is reasonable to believe that shares can reach $900/share if we look out over the next 12 months.
One trend that continues in technology is that big companies continue to purchase smaller companies with niche technologies to compliment the larger company's product portfolio. The M&A business has really picked up in the sector in the past few years, and although we are not looking at any figures this morning, we would assume that technology has supplied the lion's share of work for the investment banks recently and that is not even factoring in the IPOs that have taken place. IBM announced that they were going to buy Kenexa (KNXA) which sent the shares up $13.40 (41.37%) to close at $45.79/share. This is just the latest in tech acquisitions which pay a huge premium for products not currently in their portfolio.