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Morningstar Identifies Likely Takeover Candidates Across Equity Coverage Universe; Publishes Merger And Acquisition Insights Report For 2013

Stocks in this article: MORN

CHICAGO, Jan. 29, 2013 /PRNewswire/ -- Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today published its merger and acquisition insights report for 2013, "M&A Market Awaits Clearer Economic Signals." Morningstar's comprehensive research report includes investment ideas among its list of potential takeover candidates, merger and acquisition analysis by sector, credit implications of merger and acquisition activity, an examination of the role economic moats and stewardship play in deal-making, and a global outlook for merger and acquisition activity.

"We think 2013 will bring an uptick of deal activity, after we've seen a decline in the number of deals and very little growth in the total value of deals in the last two years," said RJ Hottovy, CFA, director of global consumer equity research for Morningstar and co-editor of the report. "While we don't see the potential for huge blockbuster deals in the near term, there's no shortage of companies with available capital on their balance sheets and high operating margins, fewer organic growth opportunities, and candidates with attractive valuations."

According to Morningstar, the top 11 investment ideas among potential takeover candidates in 2013 are:

  • Abiomed, Inc.
  • BG Group PLC
  • Chesapeake Energy Corp
  • City National Corp
  • Guess, Inc.
  • Icon PLC
  • Kohl's Corp
  • Leap Wireless
  • Mosaic
  • NII Holdings Inc.
  • SandRidge Energy Inc.

While the global economic recovery has remained sluggish, 14 prospective takeover targets Morningstar identified in the past two years have accepted acquisition offers. In 2012, IBM acquired Kenexa at a 42 percent premium, Sprint settled on a deal to acquire Clearwire—though DISH Network has since joined the bidding—and Deutsche Telekom subsidiary T-Mobile and MetroPCS announced a merger. PVH Corp also acquired Warnaco in 2012—a case where Morningstar had identified both the acquirer and the takeover candidate. Four of the 14 prospective takeover targets Morningstar identified were also highlighted as top investment ideas in Morningstar's annual merger and acquisitions insights report in 2012 or 2011.

In the 2013 research report, Morningstar equity analysts identified a total of 71 takeover targets across eight sectors: basic materials, consumer cyclical and consumer defensive, energy, financial services, healthcare, industrials, technology/communication services, and utilities. Potential takeover candidates for each sector were determined by unique and proprietary scoring systems for each sector, based on industry-specific drivers of merger and acquisition activity as well as factors such as free cash flow, management, and capital structure.

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