Investing
How Investors Can Make Money in 4 Companies Being Acquired
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If there was ever a slow, snail-like process in business, it’s one company buying another, especially when both are publicly traded. Regulators and government agencies sift through mountains of material, while risk arbitrage accounts buy the company being acquired and sell-short the acquiring company in an attempt to squeeze out some gains as they handicap the likelihood of the deal actually being completed.
This year has seen a plethora of huge deals being announced, and we decided to sift through the group via our 24/7 Wall St. research database, looking for the ones most likely to actually be completed. While there are no guarantees either way, we found four that look solid and offer investors a chance to buy the companies below the actual acquisition price.
Baker Hughes
While a huge deal with Halliburton fell apart earlier this year, the company recently announced a merger with General Electric. Baker Hughes Inc. (NYSE: BHI) is engaged in the oilfield services industry and is a supplier of oilfield services, products, technology and systems used in the oil and natural gas industry around the world. It also provides industrial products and services for other businesses, including downstream chemicals and process and pipeline services. It conducts its operations through its subsidiaries, affiliates, ventures and alliances.
Baker Hughes has four geographic operating segments: North America, Latin America, Europe/Africa/Russia Caspian and Middle East/Asia Pacific. It also has an Industrial Services segment, which includes the downstream chemicals and the process and pipeline services businesses. The company’s oilfield products and services are of approximately two categories: Drilling and Evaluation or Completion and Production.
The markets were somewhat stunned when a huge deal was announced to combine GE’s Oil & Gas business with Baker Hughes to create a leader in oil and gas equipment, technology and services with $32 billion in revenue that can leverage GE’s digital and technology expertise and Baker Hughes domain knowledge, capabilities and presence in oilfield services. Under the terms of the agreement, Baker Hughes shareholders will receive a special one-time cash dividend of $17.50 per share and 37.5% of the new company. GE will own 62.5% of the new company. The stock spiked on the deal but has pulled back, offering a nice entry point.
Baker Hughes investors are paid a 1.16% dividend. The Wall Street consensus price target for the stock is $60.78. Shares closed Tuesday at $58.86.
This high-profile tech stock was purchased by Microsoft after being a momentum trader’s dream for years. LinkedIn Corp. (NYSE: LNKD) operates an online professional network worldwide. Through its proprietary platform, the company allows members to create, manage and share their professional identity online; build and engage with their professional networks; access shared knowledge and insights; and find business opportunities.
It also offers LinkedIn mobile applications across a range of platforms and languages, including iOS for iPhone and iPad, Android, BlackBerry, Nokia Asha and Windows Mobile; and a public website that allows developers to integrate its content and services into their applications.
Microsoft announced in mid-summer a gigantic all cash $196 per share offer for LinkedIn. While some on Wall Street gasped at the huge premium paid, Microsoft continues to expand its product line and cut its dependence on software sales. While it remains to be seen how the fit will be, the analysts like the overall product synergies the deal brings.
The consensus price target for the stock is set at $187.45. The shares closed Tuesday at $191.32.
Microsemi
This is a company that could benefit from continued industrial demand and is shopping itself. Microsemi Corp. (NASDAQ: MSCC) offers a comprehensive portfolio of semiconductor and system solutions for communications, defense and security, aerospace and industrial markets. Products include high-performance and radiation-hardened analog mixed-signal integrated circuits (ICs), power management products; timing and synchronization devices and precise time solutions, setting the world’s standard for time; voice processing devices; RF solutions; security technologies and scalable anti-tamper products; Ethernet solutions; Power-over-Ethernet ICs and midspans.
At the company’s most recent Investor Day, Microsemi raised some of its long-term financial forecasts. It expects business to grow organically at 6% to 8% a year and revenues to increase more than $2 billion by 2020. The company also increased its gross and operating margins expectations to 60% or more and 35%, respectively, from 60% and 30% projected earlier.
The company also reviewed a few key areas of growth, and it now expects storage and data center, Ethernet, precise timing ICs, optical transport network processors, aerospace and field-programmable gate arrays to be the catalysts for future continued growth.
While it hasn’t actually announced a deal, the company is said to be running a sale process after receiving takeover interest from Skyworks Solutions. According to people familiar with the matter, Microsemi has hired Bank of Montreal to run a broader auction after Skyworks offered to buy the company. The process appears to be in the early stages, no deal is imminent and a transaction may not occur.
The consensus price target for the stock is $49.20. The shares closed yesterday at $46.72.
NXP Semiconductors
This company is considered a top play for investors looking for a chip stock with Internet of Things (IoT) exposure. The NXP Semiconductors N.V. (NASDAQ: NXPI) merger with Freescale Semiconductor was widely applauded on Wall Street, and many analysts believe the merger is transforming the company into a powerhouse. It made NXP the fourth largest semiconductor company in the industry.
It is also important to note that the combined company has become the number one supplier in auto semiconductors, number one supplier in global microcontrollers, as well as a dominant supplier in mobile payments.
NXP is getting its chips into high-growth areas such as contactless mobile payments, the IoT, mobile-phone charging, increased cellular data consumption and LED lighting. Trading at a solid discount to peers, analysts are very positive on the faster earnings growth potential relative to their competition.
Top analysts are bullish on Qualcomm’s acquisition of NXP, which the chip giant is buying in an all-cash deal at $110 per share. The deal is expected to close at the end of 2017 and should be immediately accretive to Qualcomm earnings. The merger brings together complementary products for mobile, automotive, IoT and networking applications.
The consensus price target for the stock was not posted. The shares closed Tuesday at $99.01.
While there are other very high profile deals out there, these four look like they have the best chance of being approved not only by regulators, but by shareholders of the companies as well. There is clearly upside to the stocks being acquired, but the timeline may be a long one.
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