Monday, March 9, 2009

M&A & Channeling Stock Updates

New MANDA addition
I don't know how I missed this one but last Thursday human resource services company Gevity (GVHR) agreed to be taken private by the TriNet Group in an all-cash deal worth $4 a share nearly doubling the previous day's closing price. (The stock hasn't been above $4 since last November after falling well off it's $30 high set back in 2006.)

The deal has the approval of both boards as well as two of its major shareholders, ValueAct Capital Management LP and General Atlantic LLC which own over 13% and 9% of outstanding shares respectively. General Atlantic also happens to be TriNet's biggest shareholder. Pending Gevity shareholder approval, the deal is expected to close in the second quarter. An analyst at Roth Capital Partners said that he expects shareholders to approval the deal.

In a statement released by the company, Gevity will be paying a special 5 cent dividend on April 30th to shareholders on record as of April 16th. In light of the merger, the board postponed their annual shareholder meeting from May 20th to a time as yet to be determined.

I have a good feeling that this merger will succeed and I added the stock today at $3.78 to my M&A portfolio, MANDA. Including the proposed $0.05 dividend, this trade will yield 7.1%.

Good news on the Dow/Rohm-Haas front
The threat of a lawsuit brought by Rohm-Haas (ROH) against Dow Chemical for failure to complete their merger within the allotted time finally forced Dow into a pow-wow with the chieftains at Rohm. This was a tough one for kimosabe Dow since the financing they expected from the Kuwaiti government unexpectedly fell through and paying the proposed $78/share for Rohm stock would have put Dow's credit rating and viability as a company in serious jeopardy.

The trial was all set to commence this morning but proceedings were halted twice by the judge. Both companies finally agreed to proceed with the merger as planned especially since Warren Buffett and the Kuwaiti government both rode in on white horses throwing $3 billion and $1 billion respectively into the kitty. The two largest shareholders in Rohm-Haas also agreed to pony up $2.5 billion in Dow preferred shares plus an additional $500 million in cash. Rohm shareholders will receive their $78 per share plus proceeds from the almost $3 million per day penalty fee that Dow has racked up for not closing the deal on time.

The acquisition is set to close no later than April 1st. Let's hope this won't be an April Fool's joke on us Rohm stock holders. (ROH is a MANDA holding.)

Other Big Pharma deals
On January 23rd, Wyeth (WYE) agreed to be acquired by Pfizer (PFE) for $68 billion in a cash and stock swap deal ($33 in cash plus 0.985 shares of Pfizer). One third of the deal is being financed by banks who said they will withhold financing if Pfizer's credit rating drops below a certain level. Since the deal was announced, shares of Pfizer have dropped 25%. I don't like buying into deals involving stock swaps, especially in this negative market climate.

Two big deals today—one done and one in the works. Merck (MRK) picked up Schering-Plough (SGP) in a $41 billion cash and stock swap deal ($10.50 in cash plus 0.5767 shares of Merck). I'm not taking this one for the same reason given above.

The Wall Street Journal has just reported that the board of Genentech (DNA) is seriously considering Swiss-based drug giant Roche's $95/share bid representing a $46.7 billion deal. This deal isn't struck as of this writing and I'll be scrutinizing the terms if and when it's offered. Roche already owns 56% of DNA stock and has been trying to buy it for months.

Note: My blog on 11/4/08 cites other potential takeover candidates in the drug sector. Here are the eight stocks that I felt were attractive targets: BIIB, CRL, DNA, GENZ, GILD, LIFE, and TECH.

Channeling stocks update
For those of you following my Channeling Stock Breakout recipe, two stocks broke their lower support channels today: SWS Group (SWS) and Roper Industries (ROP). Bearish positions can be taken on these two and they're both optionable (watch out for light liquidity). Recent channeling breakdowns, Oracle (ORCL) and Paccar (PCAR) are both continuing strongly to the downside.

Tomorrow I'll be looking at a defensive play and by ”defensive” I mean it in more ways than one. You'll see.

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