The start of a very odd week
Today's Financial News - Posted December 1, 2008
The headlines may make you believe we are back to business as usual. But this market is far from normal. Citgroup (NYSE:C) is buying a road builder. Toll Brothers (NYSE:TOL) was upgraded. Sumner Redstone is selling and Johnson and Johnson (NYSE:JNJ) is buying.
By Andrew Snyder, TodaysFinancialNews
Baltimore – (TFN): Take a look at the front page of any of the world’s financial newspapers and it looks like business as usual. There is news of mergers and acquisitions, upgrades, downgrades and even reports of consumers finally opening their wallets. But read beneath the headlines and things do not look quite so normal.
The first thing that caught my eye this morning was news of several interesting mergers and acquisitions. First, Johnson & Johnson (NYSE:JNJ) announced it is shelling out $1.07 billion for Mentor Corp. (NYSE:MNT), a leader in “body sculpting” products.
The move proves the cash-heavy healthcare conglomerate is using the economic downturn to embark on a first-rate shopping spree. You may recall the company spent over $400 million for a small biotech firm last week.
Today’s acquisition will give Johnson & Johnson a strong position in the cosmetic surgery market. Mentor manufacturers breast implants, liposuction equipment and is even working towards a strong wrinkle-reducing technology.
As the Baby Boomer generation ages, Johnson & Johnson’s market position will only get stronger. The Mentor purchase (at a nearly 100% premium to Friday’s closing price) will reduce the conglomerate’s earnings by three to five cents this year, but with Mentor’s lineup, it will be a winning call in no time.
Making more headlines
Of course, these two companies are not the only ones making M&A news. One of the most interesting stories is once again out of Citigroup (NYSE:C). The company that was making bailout headlines a week ago is spending $10 billion to purchase a Spanish highway construction company.
In an effort to reduce its debt burden, Sacyr Vallehermoso, sold its Itinere subsidiary to Citi for euro2.87 billion in cash and euor5 billion in assumed debt. There is going to be much more to this story in the next few days. After all, the last thing Citi needs is more debt.
It is interesting, however, that Citigroup upgraded Toll Brothers (NYSE:TOL) this morning from sell to neutral. Maybe it truly believes the homebuilder is cheap. But more likely it is a not-so-covert attempt at selling the public on its off-the-wall acquisition.
Finally, Sumner Redstone is making headlines. But this time, he is not the one shelling out big bucks to acquire some new company. Today, he announced he sold his 87% stake in Midway Games (NYSE:MWY) in a last-ditch attempt to substantially lower his debt.
For years, Redstone helped prop up the software publisher’s valuation by grabbing share after share of Midway. He paid a premium for a large part of his shares and is now taking a huge loss of about $800 million on his position.
Now that Redstone is out of the picture, the company’s valuation is plummeting. Shares of Midway are down by more than 35% so far today.
Today’s news is proof that the credit market mess is far from over. The nation’s top investors are still de-leveraging everywhere they can. And with the easy cash already out the door, troubled companies are making some not-so-ordinary moves.
The headlines may look like we are back to normal. But in reality, this market is anything but normal.
Next Article: Making money: Ford (NYSE:F) hands us 50% gains
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