We’ve had a flurry of activity in the last several days—no surprise considering that corporations are awash with cash, and they are looking for a smart way to reinvest this money. Some corporations are using that cash to buy back their stock, while others are hiking up their dividend payments.
I’m a big fan of each of these strategies. They benefit the individual investor and my palms itch in anticipation of the impact on earnings and the profits that come from it. But there’s another very reasonable use for this cash that is becoming very popular right now and is making big splashes in the headlines—mergers and acquisitions.
Take a look at some of the latest deals hitting the market:
- FSI International (FSII), a semiconductor equipment company, announced a deal to be acquired for $6.20 a share by Tokyo Electron. That represents a 54% premium to the stock’s previous price.
- Pervasive Software (PVSW), provider of data management software, received an unsolicited $8.50 per share bid from Actian Corp. The offer is 30% above the stock’s previous closing price.
- Chinese advertising company Focus Media Holdings Limited (FMCN) has received a $27 per-share cash bid from a group led by the company’s CEO and U.S. buyout firm Carlyle Group (CG). The bid is about a 15% premium against FMCN’s prior close and represents the biggest-ever delisting of a NYSE-listed Chinese company.
- Tesoro Corporation (TSO) will acquire BP plc‘s (BP) refinery and ARCO retail operation for approximately $2.5 billion. TSO shares surged 10% yesterday after the deal was announced, as the company anticipates the transaction will be accretive to earnings in both of the initial two years of operations.
- And looking forward, a merger between U.S. Airways Group (LCC) and AMR Corporation—parent company of American Airlines—may be just weeks away.
When you own a stock that is involved in a merger or acquisition—or even if your stock has rumors of M&A activity—it can feel like winning the lottery. However, although these companies are high in the headlines now, that doesn’t mean that all these stocks should have been purchased prior to their M&A activity.
In fact, only three of these companies pass my high standards—find out which three by visiting my Portfolio Grader tool.