Latest in Mergers and Acquisitions – Trends and Activity
What’s the Latest with Mergers and Acquisitions?
Here goes the merger and acquisition (M&A) fever again. 2015 will be remembered for some of the largest volumes in M&A activity on record. Especially significant deals are those struck by major pharmaceutical and chemical companies.
In November giant pharmaceutical Allergan acquired Pfizer in a transaction worth $150 billion. Creative structuring of the transaction enabled the smaller of the two enterprises (Allergan) to acquire Pfizer to take advantage of the lower corporate tax impact due to Allergan’s home base of Dublin. Pfizer stockholders were not surprisingly disenchanted with the move with shares dropping considerably as an initial result of the merger. Subsequently shares have trended upwards to the tune of about 3% so far to reflect a turnaround of opinions for shareholders regarding the transaction.
Politically this move has aroused the ire of many US politicians who see these mergers intended to avoid the higher US corporate tax rates as unconscionable and even “unpatriotic”. Pfizer is of course not the only enterprise to make these tax inversion moves, as such corporations as Burger King and Chiquita Brands have also made similar moves.
As recently as Friday another testament to M&A trends hit the news wires as Dow Chemical and DuPont agreed to merge operations that will combine to form a consolidated company named DowDuPont worth an estimated $130 billion. The companies have identified billions in cost savings through completing the merger, which is expected to take up to two years to complete. Joining the two companies will create a chemicals giant, although the plan would be to divide the enterprise into three separate entities focused on the segments of agrochemicals, material sciences, and specialty products.
What do these Mergers and Acquisitions Mean to Shareholders and Day Traders?
There are certain generalities that may guide investors when news of mergers and acquisitions become known to the public. It is typically the case that the company being acquired experiences at least a short-term boost in stock price. This is due to the fact that the acquiring enterprise may offer a premium price for the company’s stock or even offer a stock swap for the acquiring company.
On the downward side are the acquiring company’s shareholders who may realize at least a temporary slide in stock price for several reasons:
- Concern over the outcome of management restructuring that may be a result of the M&A
- Increased debt that the new company may incur to complete the acquisition
- Lost focus on productivity and new markets as the merger is completed and integration of disparate corporate systems is accomplished
This temporary shift in share prices of each of the companies involved can be seen by some day traders as an opportunity for quick gains or also as a sign to sell, depending on the trader’s current holdings.
Making the Most from Mergers and Acquisitions
Profiting from mergers and acquisition activities depends largely on the timeliness of information available to you so that you can react quickly. Real-time access to news feeds and financial information is invaluable for these trade opportunities. Be sure your online broker provides these advantages for you and executes your trades quickly and consistently. That’s what makes the difference for day traders.
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Disclaimer: SureTrader Blog is not intended for U.S. persons. Stock information is not to be viewed as buy or sell recommendations.