Merger Mania or Smart Shoppers?

by: James Byrne

The market continues an impressive recent pattern of selling off early only to be met with strong buying both from individual investors and institutional as well. Very impressive also has been the deal making thus far in 2009. Most recently the Oracle (NYSE:ORCL)| of Redwood, Larry Ellison, pounced on a bride left at the alter, Sun Micro (JAVA). Will IBM reenter the fray? IBM, for now, says not. But, the real story is the magnitude and swiftness of the deals being done in 2009 and the manner. Most announced deals are coming with all or a significant cash portion in the offerings.

Perhaps lost in the carnage of 2008 and early 2009 is companies became extremely frugal. Hoarding cash and aggressively managing expenses. As we start to see signs of an economic bottoming, even hints, I believe we'll continue to see oportunistic M&A activity accelerate.

Where to look? Follow the cash. Telecom? How about local company Sprint (NYSE:S) (local for me)? Who could have an interest? Look no further than Deutche Telecom (DT). DT is having difficulty expanding it's footprint in the US and a combination with Sprint would present a formidable competitor to AT&T (NYSE:T) and Verizon (NYSE:VZ), the number one and twp carriers in the US.

We can look at out of favor areas such as the farm and construction machinery playground for opportunity. While the sector as a whole is in a hunckering down period, valuations look extremely enticing. I am looking to the big players with strong cash flows, with Deere (NYSE:DE) as an acquirer. The potential prey? Oshkosh (NYSE:OSK) perhaps? Oshkosh has gotten hammered with the collapse of the construction markets. However, they have strong defense, fire and refuse business. Oshkosh is reducing debt and cutting expenses resulting in cost saving of $150 million in FY 09. While work needs to be completed on their credit facility, as the construction cycle recovers, so should the weaker areas of the company's business. Deere would have the opportunity to enter new markets, acquire a company with a solid product mix, but one that was overextended at the wrong time. A positive for Deere and Oshkosh as well, Deere just recalled 68 employees on improved orders in construction and forestry.

If this is the beginning of the turn, now should be the time to be forward looking and oportunistic. We are all to cautious for a mania to grab hold, but when opportunity knocks....

Disclosure: As a note, I own no share of any stocks mentioned here.

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