We’ve had a flurry of mergers and acquisition activity in the last several days. This week alone we had several big buyouts announced, so let’s get caught up and see whether this new activity presents any buying opportunities:
Avis Budget Group Inc. (CAR) has received antitrust clearance from the U.S. to buy out Zipcar Inc. (ZIP) for $500 million. By acquiring Zipcar, Avis will be the proud owner of 10,000 vehicles across the U.S., Canada and Europe and add Zipcar’s 760,000 members. So, this acquisition which should wrap up sometime in mid-spring, should offer some interesting buying opportunities. Adding the Zipcar fleet should generate $50 million to $70 million in annual synergies. I have CAR down as a Buy and Zipcar Inc. is looking pretty good on the fundamentals side (including highly-rated sales and earnings growth).
Liberty Global Inc. (LBTYA), a broadband service provider, announced plans to buy Virgin Media Inc. (VMED) for $16 billion ($23.3 billion including debt). According to Liberty management, Virgin Media is an especially attractive takeover target due to its firm handhold in Europe’s largest media and communications market. If shareholders accept this deal, they would end up owning about 36% of the new holding company and would have approximately 26% of the voting rights. Pending approval, the deal is expected to close in the second quarter of this year. These two companies also have a solid foundation; VMED has robust sales, earnings and operating margin growth and I consider LBTYA a buy.
AMR Corp., the parent company of American Airlines, has gone bankrupt so it is currently in talks with US Airways (LCC) to form a possible merger. If the deal goes through, this would form the world’ largest airline by traffic. Nothing has been finalized, but estimates put the deal at around $11 billion. We should receive more details about the deal later this week. In the meantime, I consider LCC, a Moderately Aggressive stock, a good buy.
Dell Inc. (DELL) dominated market headlines last week after founder Michael Dell announced that he’s taking the company private for $24.4 billion. This is the largest buyout of its kind since the financial crisis and also concludes Dell’s nearly a quarter century history on Wall Street. Dell, along with other PC makers, has been struggling while smart phones and tablets have changed the landscape of personal computing. And while the buyout will help Dell reduce costs, the company still has plenty of work cut out for it. Just take a look at its current Portfolio Grader rating: DELL outright fails my grading system in terms of sales growth, earnings growth, its track record of beating analyst estimates and more.
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, even if a company is high in the headlines, I recommend that you run each and every one of your positions through my Portfolio Grader tool to assess their long-term fundamental health and upside potential.