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TheStreet Open House

5 Big Deals That May Flop in 2012

Stocks in this article: MHS ESRX VMC MLM CVS EP KMI DUK PGN JNJ IEP CLX CMC MMI GOOG OSK NAV

1. Carl Icahn's Takeover Mania.

After returning over 30% on his holding's in 2011, Carl Icahn, the legendary shareholder activist may see his fate turn as he chases takeover attempts, mergers and increasingly complex proxy campaigns.

In 2011, Icahn pushed spin offs of non-core exploration and intellectual property assets in his billion dollar plus-sized minority stakes El Paso (EP) and Motorola Mobility (MMI - Get Report), respectively. When the push to monetize assets yielded full company sales, the deals netted the investment mogul impressive returns as Kinder Morgan (KMI - Get Report) and Google (GOOG) swooped in and paid big premiums to buy the companies.

The El Paso deal was the biggest takeover of 2011 and Google's purchase of Motorola Mobility was both the biggest U.S. tech deal of the year and the high water mark in a Silicon Valley patent M&A war. For more on Carl Icahn see his portfolio of stock holdings.

However, Icahn also started a strategy to push for takeovers among his large holdings. In July, Icahn submitted a $10 billion bid for cleaning products giant Clorox (CLX - Get Report), offering $76.50 a share for the company, one of his largest holdings at the time with a 9.4% stake worth nearly $5 billion. When submitting the bid, he indicated that strategic buyers like Procter & Gamble (PG), Colgate-Palmolive (CL), Kimberly-Clark (KMB) and Unilever could pay $100 for the company and be stronger acquirers.

All Icahn needed for the bid to work was shareholder support. That didn't materialize and in September, Icahn withdrew his bid and focused on other takeover efforts like a scrap metals giant Commercial Metals (CMC - Get Report) and a truck-making tie-up between large holdings Navistar (NAV - Get Report) and Oshkosh (OSK - Get Report).

As those M&A attempts come up against January proxy deadlines, it increasingly looks like Icahn's strategy to push for takeovers and M&A may not yield desired results.

On Jan. 11, Icahn withdrew his $1.73 billion hostile bid for Commercial Metals after less than 40% of the scrap metals giant's shareholders tendered their shares, meanwhile a proxy campaign to nominate a slate of directors to Oshkosh's board, who will likely push for a sale, may not succeed either.

Both Commercial Metals and Oshkosk are in cyclical construction and industrial-related businesses that may be nearing a bottom after a post-crisis lull. But, Icahn doesn't invest in gradual economic recovery and new management initiatives. He pushes for immediate change.

In 2012, look for Icahn to either start winning proxy contests or tack in strategy by finding companies with assets to sell, instead of trying to get into companies that need to be sold quickly.

For companies in Icahn's sights, his success and failure will have a big impact on their stocks. Commercial Metals shares are down over 10% since Icahn withdrew his tender, even as the S&P 500 has gained.

For more on stocks that may benefit from a cyclical recovery, see Barrington Research's best stock picks for 2012.

-- Written by Antoine Gara in New York

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