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Let the buying begin: Merger Mondays are back!

Today's Financial News - Posted August 31, 2009

The major indices may be in negative territory today, but it is a good day for Wall Street. If the nation’s largest companies are buying, consumers cannot be too far behind.

By Andrew Snyder, TodaysFinancialNews.com

Baltimore – (TFN): Merger Mondays are back. But the markets don’t like the news. Even though a handful of the nation’s most economically sensitive firms are pulling their heads from the sand and shelling out big bucks in the name of growth, the markets started the week deep in the red thanks to a disastrous end-of-the-month selloff in Asia.

As investors across the globe wonder if revenue growth is necessary to prop up current share prices, China’s market dipped by more than 6% on Monday. The bears trounced their way across the globe, taking European markets down by about 1% and the S&P down an equal proportion so far today.

But there is good news, especially if you are a fan of comic books. Word is quickly spreading that Disney (NYSE:DIS) has worked out a $4 billion deal to purchase Marvel Entertainment (NYSE:MVL).

Now Mickey and Donald will have to fight with the likes of Spider Man and Iron Man for the attention of Minnie and Cinderella.

This is an interesting deal for several reasons. First, the move shows Disney needs to find growth any way it can find it. With a nasty recession hurting its theme park sales and its media business, the easiest path towards top-line growth is by purchasing it.

The fact that nearly half of the $4 billion deal will come in the form of Disney shares helps to illustrate Disney top brass feels share price is heading towards overpriced territory.

While the deal will add to Disney’s revenue stream, the news will likely be detrimental to share price over the next few weeks and months. So far today, however, shares are down by just 1.25%, only slightly worse than the overall market.

Cartoons and chemicals

About as far removed from the fast-action world of comic book characters and theme parks is the competitive and rather boring chemical industry.

The nation’s top titanium-dioxide pigment manufacturers may not be a conversation during a Saturday-night date, but come Monday morning, with word of a major acquisition, it is worth checking out, especially for us finance geeks.

Earlier today, Huntsman (NYSE:HUN) announced its $145 million bid for Tronox (PINK:TRXAQ), a bankrupt company with loads of debt but over a billion in annual revenues.

The offer, while agreed on by both sides is anything but final. It still has to be approved by a bankruptcy court, and as a “stalking horse” contract can be outbid by another party, like the industry leader Dupont (NYSE:DD).

Although Huntsman will have to pay for the acquisition through added debt, the move will almost immediately benefit Huntsman’s balance sheet and cash flow.

Shares of Huntsman are down by just over 5% so far today (after tripling since March), but don’t expect the bearishness to persist. Once this deal comes closer to finalization, share price will change direction.

Investors that get in over the next week or so will likely get a bargain.

While both stories are creating trading opportunities, the best news is for the overall markets. Increased M&A activity is a sign of a recovering market and a strengthening economy. The more cash we see put on the line, the higher stock prices will go.

I am already looking forward to next Monday.


Next Article: Cool your heels on Vical Incorporated (VICL)

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Posted by Andrew Snyder · Filed Under Featuring..., US Stocks and Markets 

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