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) 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) $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.