The Options Way to Play Takeovers
Yesterday, financial media revitalized the term “merger Monday” as some $60 billion in deals were confirmed. A few such as LVHM’s bid for Tiffany (TIF) has surfaced a few weeks ago. But, others such as Schwab’s (SCHW) move to acquire TD Ameritrade (AMTD) came to light just recently, and Novartis (NVS) purchase of Medicines Co. (MDCO) came as a surprise and sent shares surging.
Overall, takeover activity has picked up over the past six months, and 2019 is now on pace for the most active year for mergers and acquisitions, in terms of both the numbers of deals and dollar amount, since 2013 when companies started to sort through the post-financial crisis landscape.
This time around, it’s the lack of organic revenue growth as we enter the later innings of economic expansion and the low cost to borrow money, which has spurred the merger and acquisition activity.
There has also been a notable increase in private equity firms using the cheap cost of capital buyout cash flow positive businesses. For example a few months ago, Red Robin Burger (RRGB) shares popped over 10% after receiving a buy-out bid Vintage Capital for $40 a share. Shares have since slumped back to $27. But…
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