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Xerox Copycats: Collateral Damage

NEW YORK ( TheStreet) -- M&A is back. And that means it might be a good time to sell any acquisitive large-cap companies in your portfolio.

There is so much that can, and often does, go wrong with big deals, so it's little wonder that Xerox (XRX - Get Report) saw its shares get whacked by more than 14% after it agreed to buy Affiliated Computer Services (ACS) for $6.4 billion in cash and stock. The other big transaction announced Monday, Abbott Laboratories' (ABT - Get Report) $6.6 billion purchase of the pharmaceuticals business of Belgium's Solvay, got a moderate thumbs up from investors, with Abbott's shares rising 2.6%.

Of course, it's silly to judge an entire strategy by looking at share performance of the acquirers shortly after deals are announced. Initial reactions tend to relate more to the price paid in a deal (too much or too little) than Wall Street's view of the combination's ultimate success. What is less silly is a paper called "Does M&A Pay?" by Robert F. Bruner, which examines more than 120 scientific studies of the question. Though the paper concludes that M&A does indeed pay, most of that conclusion is based on benefits to target companies.

For acquirers, there was a broad dispersion of findings around a zero return, suggesting that executives should approach this activity with caution. A zero return? Hardly good news, though I guess from that perspective if you're a Xerox shareholder you might want to wait for the shares to go back up.

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