Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Wednesday August 9. Click on a stock ticker for more analysis:
Bad Acquisitions: Brocade Communications (NASDAQ:BRCD), McData (MCDTA), Sprint Nextel (NYSE:S) eBay (NASDAQ:EBAY), EMC (EMC), RSA Security (RSAS), Alcatel (ALA), Lucent (LU), and Boston Scientific (NYSE:BSX)
All mergers and acquisitions are not created equal, says Cramer, and some companies lose out by in these deals, such as Brocade, which fell from $6 to $5 when it announced a merger with MCDTA. Cramer commented that "All unhappy acquisitions are unhappy in their own way," and listed five types of "bad" acquisitions.
1. "I'm gettin' out while the gettin' is good" - This happens when a seller is overvalued, is characteristic of the union between Sprint and Nextel, and is a good reason to get rid of the stock.
2. "don't just stand there, do something" - This happens when companies are "scared and desperate," and Cramer believes that eBay acquired Skype for this reason. This panic move cost eBay billions and did nothing to improve the company.
3. "panic and overpay"- This acquisition is different from #2 because it might have been a good idea,but the company simply shells out too much money, as EMC did when it bought RSAS.
4. "the two drunken sailors trying to keep each other up"- This happens when two companies who are performing poorly pool their efforts, such as Alcatel (ALA) and Lucent (LU), although they usually both drown.
5."Napoleon"- Cramer calls this the "absolute worst" of all bad acquisitions and involves a small company which buys another company to compete in a bidding war, as BSX spent too much for Guidant, and has been a "sell" according to Cramer, ever since.
Good acquisitions, such as Whirlpool's purchase of Maytag and PG's purchase of Gilette, can eliminate competition, which is good news for the shareholder. Federated Department Stores was able to raise prices after its acquisition, and Cramer comments that JNJ's purchase of Pfizer'sover-the-counter division was a "survival of the fittest" acquisition, and benefitted both companies.
CEO Interview: SunPower (NASDAQ:SPWR) CEO, Tom Werner
Cramer asked Werner about SPWR's visibility, and he replied that as the company scales business and cuts costs, opportunities will expand. He discussed the fact that Germany is ahead of the U.S. in solar power, because of their desire to be independent of fossil fuels and generous government support for the industry. Werner expects the expansion of a government program supporting solar energy for eight more years, although solar energy's lobby is small.
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