Several months ago (May 13, 2009), I noted this about the mechanics of trading mergers:
http://epiphanytrading.blogspot.com/search?q=takeover+talk
Well, what is downright interesting in here is how the pace of merger activity has picked up in recent days. In the last few days, we’ve seen acquisition attempts made on Bowne (BNE), OSI Pharmaceuticals (OSIP), Millipore (MIL) and then yesterday Terra Industries (TRA). A few years ago, the mergers and acquisition business was all the rage. There was a race to consolidate and slice and dice companies to make them more “cohesive” and “earnings accretive” for the acquirer. Historically, these manias come and go. Many of us Old Schoolers are familiar with the binge of the 1980’s when deals like RCA were all the rage and punctuated by the ‘Friday the 13th’ mini-crash on October 13, 1989 when the United Airlines leveraged buyout fell through. Things slowed in the early ‘90s and then picked up again big-time in the latter half culminating with the massive AOL-Time Warner as the market soon crashed thereafter. There were little waves here and there in the last few years, but the pace of merger activity has earnestly been increasing this year. And for once, hopefully maybe, it’s a good one because it shows a little confidence by firms in, well, business. In this fragile economic recovery, any sing of confidence from a macro standpoint is good. Well, why else would CF Industries (CF) raise their bid significantly for Terra (TRA) yesterday if they didn’t think it’d make for a good acquisition? Plus, by offering stock and cash, it shows that funding options do exist. Now this is not a macro column so I cannot begin to guess “who is next.” But I circle back to the original May 13, 2009; as merger activity increases, we will begin hearing rumors of things like ‘take overs,’ ‘acquisitions,’ ‘sectors in play,’ and other key buzz words. So, pay rapt attention to the pick-up in this activity and know how to play the deals day-trading wise via understanding each individual deal and by being quickly in and out of a situation.
Markets in Asia were lightly mixed overnight with Tokyo up 0.3% and Hong Kong down -0.1%. Those numbers are volatile compared to Europe where every index is showing a net change in the single digits. Everything else is quiet as well. The ADP report came in as expected with the January numbers revised down. Futures are marginally higher. It’s Groundhog’s Day all over again for you Bill Murray fans. The upside bias is continued (particularly when several people have noted to me how the S&P has a series of upside days), there’s hope for the Greek austerity measures with the Greek-German 10 year spread at its lowest in three weeks, and it’s snowing once again in Gotham which will keep activity low. Keep your focus on the stocks in the news and avoid all momentum trading until/unless the market perks up.
Reiterating-
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
HGSI- decent earnings
MATK- decent earnings
SNIC- closed near a high after announcing that its Roxio CinemaNow entertainment platform will support digital movie delivery to the Windows Mobile platform
PCX- closed near a high on takeover rumors
OSIP- continued to move above its 52 takeout price in closing near a high
NOVL- Elliot Associates offered to buy out NOVL for $5.75 in cash
MDR- closed near a high after posting good earnings
MXB- closed near a high after an upgrade
AMCF- good earnings
JDSU, APC- on “Mad Money” last night
DIN- decent earnings
MFB- good earnings
Bad-The following stocks have bad news and/or a weak technical pattern
PAY- poor earnings
APSG- poor earnings
NTRI- closed near a low after issuing terrible earnings
TSTC- closed near a low on continued fall-out from a share offering
BRK/B- closed near a low
AZO- closed near a low after posting earnings
CTRP- announced 5.7 million share secondary offering
ARD- closed near a low after posting terrible earnings
UNFI- closed near a low after posting terrible earnings
CPNO- share offering
VISN- terrible earnings
BIG- poor earnings
COST- poor earnings
CSIQ- poor earnings
MDVN- closed near a high, but announced this morning that its Dimebon does not meet primary nor secondary endpoint in phase III trial
Earnings:
WED MAR 3 BEFORE
BIG BJ COST
CSIQ JOYG
WED MAR 3 AFTER
AUY CWTR FL
FNSR HMIN PETM
SINA SQNM TTWO
Good luck today.
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
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