Merger Mania Strengthens Market

What's so good about mergers?, I was asked the other day. For a moment I hesitated, given that so many of the companies that I own for Action Alerts PLUS have actually been damaged by willy-nilly mergers in the last few months, Cendant (CD - commentary - Cramer's Take) being the latest victim.

The answer, of course, is excitement. Did you really think, Tuesday, that Constellation Energy (CEG - commentary - Cramer's Take), the old Baltimore Gas & Electric, would go up huge today? That company could have announced a gigantic dividend boost and a large increase in earnings and we would have yawned.

Instead, we applaud word that FPL (FPL - commentary - Cramer's Take) might buy it. And the people who own Constellation are going to feel great, even though the time to own that stock was three years ago, after its failed energy merchant biz blew up. (Readers of Action Alerts PLUS know all about that one!)

Or take Burlington Resources (BR - commentary - Cramer's Take). Here was a stock that was due for a rest, no matter what, that has been a remarkable stock ever since Burlington Northern Santa Fe (BNI - commentary - Cramer's Take) spun it off years ago. Yet, it went up once again on the takeover.

Think about all the ramifications beyond excitement, though. If you are a short-seller, do you have any confidence in your big utility shorts after this Constellation? How confident did you feel being short EnCana (ECA - commentary - Cramer's Take) Tuesday after the BR bid, even though EnCana has lost its CEO and CFO in a couple of months' time?

It should be dawning on people that when buyout firm Kohlberg Kravis Roberts is raising another big pool of capital and Viacom (VIA.B - commentary - Cramer's Take) can sell the library of something it is acquiring for a huge piece of change to these private capital folks, we are at the beginning of some sort of boom that will make stocks that underperform the averages and stocks that have run up huge into potential targets. Underperformers have always gone up on takeovers. But with the odd exception of Gillette, we aren't used to seeing top-notch properties get bids.

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At the time of publication, Cramer was long Cendant.

James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for ActionAlertsPLUS. Listen to Cramer's RealMoney Radio show on your computer; just click here. Watch Cramer on "Mad Money" at 6 p.m. ET weeknights on CNBC. Click here to order Cramer's latest book, "Real Money: Sane Investing in an Insane World," click here to get his second book, "You Got Screwed!" and click here to order Cramer's autobiography, "Confessions of a Street Addict." While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column by clicking here.