Time for a pause

A recent CNN headline, titled 2007 - Year of the mega-buyout, shows how expectations of a buyout boom are now widespread. Along with countless other similar pieces over the last 3 weeks, we have now reached a point where a number of takeover targets are going for inflated prices making it very hard to pick bargains.

I will be going slow on accumulating stocks of such targets for a while, in the hope of building a pile to invest if and when there is a pullback. As usual, I will not be selling anything I am holding right now, just not buying at premium prices.

There are still occasional opportunities created by bad earnings news and similar disappointments, but even they have started to have little impact of late.

I will make sure that I make another post when I reverse my view.

A few deal updates

• Swift Transportation (SWFT) (Hit #126) received, and has accepted, a higher bid from its former CEO. The new cash offer, of $31.55/share is a premium of 82.48% over my average cost of $17.29. I will be seriously considering redploying the proceeds into Forward Air (FWRD). Another player in this sector, EGL (EAGL) got a management buyout bid recently.
  
• Icos (ICOS) (Hit #119) received a final higher offer from Eli Lilly. The new offer, at $34/share, now represents a premium of 25.05% over my average cost of $27.19.
  
• Clear Channel (CCU) (Hit #131) is likely to get a higher offer, now that institutional investors are fighting the current lowball bid. Yes, it is about time, that these overcompensated, underdelivering fund managers did something to justify even a tenth of what they are taking home!
  
• Smith & Wollensky (SWRG) got a takeover bid from Landry's. The cash offer represents a substantial premium to my buy price, but I not marking it as a hit yet since Smith & Wollensky has not accepted the offer, and a higher bid is very likely.
  

Hit #140 (USI Holdings)

USI Holdings (USIH) is being acquired by Goldman Sachs for $1.4 billion in a cash deal. The offer, of $17/share, is a premium of 45.5% over my average cost of $11.68. USI has been rumored to be a target before, and it is a bit of a surprise that a deal announcement took so long.

A recent related addition to my holdings is Arthur J. Gallagher (AJG). The stock's dip had made the yield very attractive, with the outlook not looking all that bad. Shares have since recovered. I will be looking to add on further dips.

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Previous hit - Placer Sierra (#139)

Hit #139 (Placer Sierra)

Placer Sierra Bancshares (PLSB) is being acquired by Wells Fargo in a stock-swap valuing Placer Sierra at around $645 million. The actual formula being used for the swap is dependent on Wells Fargo share price over a few days, but it comes to around $28/share, a premium of 18.94% over my average cost per share of $23.54.

It may look like Placer sold itself short, but looking deeper at the fast deflating real-estate bubble in Placer and Yolo counties, Placer seems to have timed this well. Wells could have waited for a better price, but given its size any price difference would have been largely immaterial. This gives Wells a much needed entry point into counties which will grow over the next few decades.

Given the premium I will be receiving, I intend to hold onto the Wells shares I get for a long time to come, as the effective yield is juicy.

I have posted frequently on banks which have featured prominently on my hit list in the past. Vineyard National Bancorp (VNBC), which I have mentioned recently, still looks attractive, and I have added to my position. I have also opened a small position in Severn Bancorp (SVBI). Virginia Commerce Bancorp (VCBI) is increasingly looking like a bargain given its takeover potential.

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Previous hit - Intralase (#138)

Hit #138 (Intralase)

Intralase (ILSE) is being acquired by Advanced Optics (EYE) for around $880 million in a cash deal. The offer, of $25/share, represents a premium of 47.6% over my average cost per share of $16.94/share.

This is another one of those acquisitions where I would have gladly accepted shares of the buyer, as Advanced Optics shares appear undervalued. Advanced Optics itself remains a target for a larger fish, and if not, there is more growth to come in this area.

My position in Intralase is small. At various points, I did consider buying more, but the lack of supporting insider activity kept me away.

Another target to watch is Iridex (IRIX), currently trading at attractive levels.

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Previous hit - Praecis (#137)