Can you hear that? That’s the sound of billions of dollars flowing as companies across all industries buy out their rivals. As second-quarter earnings season heats up, we’re also seeing the emergence of M&A mania. Today alone we had several big buyouts announced, so let’s get caught up and see whether this new activity presents any buying opportunities.
At the top of everyone’s radar was the announcement that CNOOC Ltd. (CEO) is buying Canada’s Nexen Inc. (NXY) for a hefty $15.1 billion. CNOOC Ltd. is the subsidiary of China’s largest producer of offshore crude oil and natural gas and this acquisition will give CNOOC production platforms in North Sea as well as the Gulf of Mexico and Nigeria. Together, these assets are expected to boost CNOOC Ltd.’s output by 20%. However, when you plug these two energy play in my Portfolio Grader tool, you find that CEO is a C-rated hold, while NXY is an F-rated sell, so now isn’t the time to buy.
American tech company GenCorp. Inc. (GY) is closing a long awaited acquisition of Pratt & Whitney Rocketdyne, United Technologies Corp.’s (UTX) rocket engine business. The buyout currently weighs in at $550 million and will just about double the size of GenCorp: Rocketdyne brought in $750 million in sales last year and currently has about 2,400 employees. Shares of GY gapped up today and this stock is currently a B-rated buy.
Starbucks competitor Peet’s Coffee & Tea Inc. (PEET) is being sold for $978 million to German private investment group Joh. A. Benckiser. Shareholders will receive $73.50 per share, representing a 29% premium over the stock’s closing price on Friday. This is definitely good news for those who help shares of PEET, which is rated as a C in Portfolio Grader.
Today also marked the merger of the two largest short-line and regional rail operators in North America: Genesee & Wyoming Inc. (GWR) is acquiring competitor RailAmerica Inc. (RA) for $1.39 billion, or $27.5 per share. This purchase will give Genesee a combined total of 11 railroads and 4,300 employees. Because RA is B-rated in Portfolio Grader, I imagine that it’ll give C-rated GWR a lift, but I would hold off on adding shares until it firms up.
We saw another merger in the tech sector from space imagery experts GeoEye Inc. (GEOY) and DigitalGlobe (DGI). In a deal worth $900 million, the companies will combine under the DigitalGlobe name; DigitalGlobe’s shareholders will also have majority control over the new firm. DigitalGlobe management expects that the merger will create future savings of $1.5 billion and both the existing workforces should remain intact. As exciting as this sounds, I recommend that you steer clear of both GEOY and DGI, as they are both D-rated in Portfolio Grader.
And finally, as I mentioned in today’s Stock of the Day, search engine giant Google Inc. (GOOG) is scooping up email management software Sparrow. Sparrow has made quite a splash on both the Mac and iPhone and Google management hopes that Sparrow’s team of engineers will help the development of Gmail. GOOG remains a C-rated hold.
Today serves as proof that a splashy headline about a big buyout does not necessarily mean a buying opportunity; many of these companies have their work cut out for them in terms of firming up fundamentals. I recommend that as you see more mergers and acquisitions pop up, take a moment to run these companies through my Portfolio Grader tool to see what’s really going on under the hood. This week is already shaping up to be a busy one so be sure to check in to the blog every day this week!