Wednesday, March 22, 2006

Wonder if this is why March begins with M and A

A flurry of activity in the last few days. None of these are officially marked as hits yet, since the deals are not closed.
  • Imax (IMAX) announced again that it is considering a sale of the company. This is not the first time the company has put itself up for sale. The last time rumors of a sale were heard, I posted in detail. At this point, I think the company is better off remaining standalone. It has finally found a way to generate and grow revenues via a new model, while at the same time expanding in Asia. I am happy with a 300% gain in 3 years in place of a 120% gain in a few months. I am holding onto all my shares. They are up around 80% from my buy price.
  • Jamba Juice is being acquired by a blank-cheque company, Services Acquisition Corp (SVI), listed on Amex. While such reverse-mergers have involved questionable parties in the past, this one has a huge potential for gains. I have always watched Jamba Juice with awe - they have a great franchise and a devoted following. Until the first filing following this acquisition, financial details will not be forthcoming and hence large funds may not be able to invest, keeping a lid on the price. I expect the company, once it renames itself and the ticker, to switch to Nasdaq or NYSE, in the process bringing in larger investors. If you have patience, this is still a great buy.
  • Intrawest (IDR) put itself up for sale recently. I had made a mention of it here, though I did not dare to buy given its high price. In the same post I had picked Bluegreen (BXG) and Great Wolf Resorts (WOLF) as good buys. While the stocks still look cheap, heavy insider selling in both is troubling. I own Bluegreen and Great Wolf stock.
  • Transmontaigne (TMG), an oil distribution and supply management company, today got a cash offer from Morgan Stanley. The offer, which hasn't been accepted yet, of $8.5/share seems low, and the markets, likely expecting a higher bid pushed up the shares to around $9.2/share. I had picked Transmontaigne as a target in this post on gas plays in the Rockies. The offer is around a 40% premium to my average cost, but this is not over yet! I had listed a few other picks here when Patina was acquired. Since then, I have also bought into Edge Petroleum (EPEX) and Warren Resources (WRES). Edge still looks attractive.
  • Lexar (LEXR) may get a higher bid as I had guessed here. Carl Icahn, and possibly other investors, will get Micron to pay more. That makes sense given that this is more beneficial to Micron than to Lexar - they should pay up. Like in so many such deals where shareholders get a bad price, I wouldn't be surprised if Lexar insiders got a sweet deal for themselves. Such a pattern has been confirmed by atleast one study in the past, and I had noted in a post very early on.
  • Bally Total Fitness (BFT) shares have jumped up in the last few days after rumors of a possible bid from Branson's Virgin Group. I own a few Bally shares, bought at around a 30% discount to the current price level. A good related investment now is Nautilus (NLS), maker of gym equipment. The stock looks cheap and insiders have been buying up. I will likely buy some for myself soon. Another related investment can be obtained by following Mark Wattles, former chairman of Hollywood Entertainment, who also owns a sizeable part of Bally. His one other investment, ignoring Ultimate Electronics that went bankrupt, is Tweeter (TWTR). I own a few Tweeter shares. Tweeter stock isn't cheap anymore, but if you own it already, it is worth holding onto - I expect some action there too.
  • Onyx Software (ONXS), a CRM vendor got a revised bid from CDC Corp, now offering $80 million instead of $50 million. I expect this deal to go through.
  • R. R. Donnelley (RRD) announced that it is buying Indian backoffice outfit OfficeTiger, in the process transforming itself from a printing solutions company to an outsourcing/India play. With its established rolodex, it can give OfficeTiger an easy way to rapidly expand its business. This takeover has largely gone unnoticed. R. R. Donnelley is a good buy now. Apart from the recent insider buying, the dividend yield of around 3% is comforting too.
  • Capital One (COF) bought North Fork Bank, in the process turning itself from a possible takeout target to a consolidator. Combined with the purchase of Hibernia, it has also transformed itself into a bank, from a pure credit card issuer. Capital One, as the last independent credit card issuer, was long seen as a takeover candidate for a major bank. Not anymore. This latest purchase makes Capital One an attractive long-term investment as a bank consolidator, possibly even challenging the likes of Bank of America and Washington Mutual down the road. The stock is not cheap, but may not get any more cheaper. Ofcourse, my earlier reservations on the huge payout to executives in the deal still stand.


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