Merger And Acquisition Recap - Part IV

by: The Value Investor

This week I will discuss the most important merger and acquisition announcements for the week of June 18th - June 22nd.

Sonus Networks (SONS), the provider of voice and multimedia infrastructure solutions announced the acquisition of Network Equipment Technologies (NWK) in a deal valuing the company at $41.3 million. Sonus will pay $1.35 per share for Network Equipment, a 14% premium compared to the closing price on the day before the announcement was made public. The acquisition will extend the line-up of Sonus' real time communication products. Shares of Sonus fell 5% on the week to $2.14 per share, now trading down 11% so far in 2012. Shares have been struggling to gain ground after the company issued a disappointing second quarter earnings outlook.

Walgreen (WAG), the operator of drug stores announced a partial acquisition of UK based drug chain Alliance Boots. Under the proposed terms of the deal Walgreen will acquire a 45% stake in Alliance for $6.7 billion. The deal will be financed with $4 billion in cash and the remainder in stock. The first part of the deal is expected to close by September of this year, and Walgreen will acquire the remainder of the shares in Alliance Boots in the coming three years.

Walgreen's shares fell 6% on the news as investors are not happy with the "expensive" acquisition. Furthermore, the company increases its exposure to Europe at a time when the continent is struggling and the future of the euro is unclear. Walgreen defended the rationale behind the deal by pointing out Alliance Boots strong expertise in international markets and research and development capabilities. The move also helps Walgreen in its objective to become less reliant on the US market where sales are failing after the company left the Express Scripts network.

Air Products and Chemicals (APD), the supplier of special gases and performance materials for a range of industrial customers announced the acquisition of a 67% stake in Indura S.A. for a consideration of $884 million. The partial acquisition of the company based in Chile is expected to be closed by July of this year and be accretive to 2013's earnings. The deal would make Air Products and Chemicals the second largest player in the Latin American market for industrial gases. Investors in Air Products reacted favorably to the announcement of the deal sending shares 2% higher on the day. Year to date shares have lost 8% as investors are worried about the impact of an economic slowdown.

3M (MMM), the diversified technology and industrial company announced the acquisition of FSTech for $110 million in cash. Shares of Federal Signal (FSS), the owner of FSTech ended the week 22% higher as analysts valued FSTech at roughly half the reported deal value. FSTech focuses on intelligent transportation solutions including electronic toll collection and parking management hardware and software. The acquisition is just a drop in the water for the $60 billion MMM conglomerate and shares hardly reacted on the news.

Cabot Corp (CBT), the specialty chemical and performance materials manufacturer announced the $1.1 billion acquisition of Norit NV, the largest producer of carbon. Cabot will finance the deal with $200 million in cash, a $300 million existing credit facility and $600 million in long term borrowings. Cabot says that Norit's leading position, technology and strong financial performance provides an excellent fit with Cabot's portfolio. Shares of Cabot Corporation ended the week 2% higher, resulting in year to date gains of 17%.

Last week was a reasonably active week in terms of activity levels and deal size. The total announced deal size in the sample above came in around $8.5 billion. Acquisitions have been relatively small with the exception of the Walgreen and Alliance Boots deal which came as a negative surprise to the market.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.