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As Hostile Takeover Bids Recede, Investors Bet on Earnings

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Vulcan Materials shares fell over 3% to $40.03 in Monday afternoon trading. Still shares are well above the Birmingham, AL-based company's $33.58 a share price prior to Martin Marietta's initial December offer. Overall, analysts polled by Bloomberg give Vulcan Materials a $46.83 a share price target on two buy ratings, 11 holds and two sells.

Meanwhile, analysts are focusing on Georgia Gulf's long-term chemical making prospects, making a near 10% Monday stock slump a buying opportunity. "We estimated that [Westlake] would have paid $40 (or a tad more) but this must not have been high enough for [Georgia Gulf's] board," wrote UBS analyst Andrew Cash in a note reacting to the withdrawal of Westlake's $35 a share offer made in January. "We suspect many GGC shareholders are in the stock for the recovery in the chemical cycle and they believe the stock will eventually move higher than $40 on earnings momentum alone."

"In our view, we've long been skeptical that WLK would offer anything more than $35, and frankly, are surprised at the order of downward magnitude of aftermarket trading," added Frank Mitsch of Wells Fargo, in a note to clients. "We expect GGC shares to gradually recover as fundamental investors begin to get involved in the name following the removal of M&A volatility." Mitsch gives Georgia Gulf shares an outperform rating, while Cash of UBS gives shares a neutral rating and a $32 a share price target. Overall analysts polled by Bloomberg give Georgia Gulf a price target of $36.80 on two buy recommendations, five holds and a sell.

The recent setbacks of Westlake Chemical, Martin Marietta and Roche in their hostile pursuits, in addition to the mixed results of Icahn-run takeover campaigns may speak to both an improvement in the outlook of target companies, and the firming of investor expectations of a market and economic recovery as threats in Europe and the prospect of an earnings slowdown persist .

On Monday, Credit Suisse upgraded llumina shares to an outperform rating and a $55 a share price target on earnings prospects from a new set of genomics sequencing machines that it may be able to market to hospitals, as research orders by government agencies like the National Institute of Health wane. Improving recent earnings and the longer-term benefit of new products "should help ILMN penetrate the clinical market, while ILMN's management team should be able to introduce new products that will allow it to remain a leader in the genomics space," wrote Credit Suisse analyst Vamil Divan of the upgrade.

In April, Roche withdrew its $51 a share bid for Illumina as a result of a lack of shareholder support for its offer and a slate of directors it appointed to the San Diego-based company's board.

"I guess you have to give shareholders credit for thinking long-term," Jeffrey Ubben, the head of activist hedge fund ValueAct Capital told TheStreet when asked about why some recent hostile bids like Roche's offer for Illumina had not succeeded. Ubben, who was speaking at last Monday's IMN Active-Passive Investor Summit, believes now is a great opportunity for some companies he's invested in like Valeant Pharmaceuticals (VRX) to make acquisitions .

Morgan Stanley analyst David Risinger upgraded Valeant Pharmaceuticals price target from $57 to $61 and his earnings estimates for the company through 2015 by up to 10% on Monday as a result of the company's acquisitiveness. "Future strategic activity could drive earnings materially higher over the long-term," wrote Risinger, who now expects the company to earn $4.62 a share in 2012 and $5.01 a share in the following year. In recent years, Valeant Pharmaceuticals has cut a string of deals, but it's failed to win unsolicited offers for Cephalon and ISTA Pharmaceuticals ( ISTA ).

The prospect of share gains and earnings rebounds at Illumina, Georgia Gulf and Vulcan Materials may be early reads on whether rejecting premium-priced takeover offers in falling markets proved to be in the best interest of long-term investors. On Monday, Allscripts Healthcare Solutions (MDRX - Get Report) said it would enact a shareholder rights plan -- or "poison pill" -- to ward off an opportunistic takeover bid, even before an offer emerges. To be seen is whether a poison pill will dissuade hostile bidders or activists from pushing for an Allscripts sale.

For more on hostile M&A, see why 2012 deals hinge on Goldman Sach's idea of fairness . Also see why a kinder, gentler activist emerged in recent Nook and AOL deals with Microsoft for more on shareholder activism.

-- Written by Antoine Gara in New York
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