Tuesday, May 22, 2007

Buyouts and Mergers

In honor of the announcement today that wallstrip.com has been purchased by CBS for an undisclosed sum (rumored to be around 5 million) I will take a look at some other companies destined for a buyout. The investment guru himself Warren Buffet has announced that his holding company Berkshire Hathaway (BRK-A) is in the market to acquire another company. So with all these buyouts and mergers who is next? Here are a few interesting possibilities from the retail sector..

1. Borders Group, Inc. (BGP) has been rumored to be in talks with Barnes & Noble (BKS) about a possible buyout. BGP with over 567 locations may be attractive to Barnes & Noble, but Borders has a lot of baggage. BGP has revenue of $4.11 billion but has a disappointing profit margin of -3.68%. This may be a good fit for BKS, but will they be willing to pay a premium for this company?

2. Polaris Industries Inc. (PII) is a good candidate for a private equity firm or even someone like Berkshire Hathaway (BRK-A). PII has reasonably strong earnings with a p/e ratio of 19 and total annual revenue around $1.7 billion. PII is a great target because it is profitable and has a market cap of 1.86 billion. If someone was to buy PII with a premium of say 10% they would still be right around the 2 billion dollar range. $52 (current price) X .1 (10%) + $52 (current price) = $57.2 (purchase price per share) X 35,760,000 (shares outstanding) = $2,045,472,000 (purchase price)

3. Radio Shack (RSH) has rumors flying that Dell (DELL) may be interested in a buyout. This is a little troubling knowing all the problems Dell is having with its accounting and regulatory fillings. Dell is interested in finding another form of distribution, but RSH seems like a long shot. If Dell wants to use an outside distribution method similar to HP (HPQ) why not use Best Buy (BBY) or Circuit City (CC) where the consumers can compare and contrast the different products?

Disclosure: no position

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