Editor's Note: In late Nov. 2012, Jim Cramer delivered the following speech at The Deal Economy 2013 event held at the New York Stock Exchange. During this speech, Cramer noted that Hess, then at $50 per share, was ripe for a spin-off. Monday, Jan. 28, 2013, Hess announced plans to exit its refining and marketing business to unlock value; analysts estimate about $7.00 per share in proceeds, sending the stock markedly higher.
Separately, Cramer noted that Hess' assets were worth more than the sum of their parts -- particularly the crown jewel Bakken acreage which has also benefitted companies like EOG and Continental Resources. This week, Elliott Associates is advocating the company spin-off its onshore U.S. shale assets, create an onshore MLP and divest international assets to close the gap to net asset value -- which Elliott pegs at $126/share. Read Jim Cramer's complete and prescient take on Hess, as well as nine other speculative stock ideas, reprinted in the speech below.
NEW YORK (TheStreet) -- It's a deal conference. It's TheDeal conference. So let's talk deals, namely the ten deals I see happening in 2013, ten companies that will be transformed in one way or another that will lead to dramatically higher prices. Yep, I have ten stocks that I think are worth owning on a speculative basis for next year, although my normal rules apply, I would never recommend a stock on the basis of a corporate control event unless the fundamentals warranted owning it anyway.
You aren't going to hear me tout Dell(DELL) or Hewlett-Packard(HPQ) on a merger of equals, for example, because they are both equally bad and I wouldn't own either. Who would have Autonomy in that deal? Couldn't resist a little M&A black humor.
As tempting as it is to suggest that Microsoft(MSFT) buy Research in Motion(RIMM), I think that the near 100% move off the bottom that the Blackberry maker has undergone, does preclude informed speculation in that ailing company. Sell sell sell right into the Goldman Sachs(GS) upgrade this morning.
Most transactions in 2012 were done because of fright, a fear of missing numbers, fear of no growth, and fear of being trapped in a relentlessly negative cohort. The latter is a widely overlooked factor in deal making, call it the ETF ball and chain. Companies, good and bad are now all parts of ETFs and the hedge funds, desirous of trading vehicles with bigger volume and a reluctance to get trapped individual securities now use these as trading instruments of choice. The hedge funds have homogenized and pasteurized individual companies through the power of ETFs. The ETFs are now responsible for a gigantic amount of the performance or lack thereof of an individual company's stock.
That's too bad for the CEOs, most of whom are graded by sector when it comes to the compensation committees of the boards of directors and the consultants they rely on to handle and tally performance bonuses. The only way to assure a raise is to outperform the sector ETF, something which I believe will force a major amount of deal making in 2013.
Why am I so sure of that? Because as I reviewed the top 25 acquisitions, spins and breakups, I found that the vast majority of the acquirers and the initiators of transactions went higher. It was almost uniform and I have to believe with confidence improving, deal provokers in this room will be armed with the stats that I am putting together now that shows a "don't just stand there, do something," attitude is an attitude that has paid off for shareholders and managements alike. Do you know how hard it is to move a food giant like Conagra(CAG) one dollar and 47 cents? Yet it did so when it paid $5 billion for rival Ralcorp(RAH). PVH(PVH), the old Phillips Van Heusen, managed to rally 23 points from $91, when it bought out its Calvin Klein partner Warnaco. Believe me, nobody else in their industries had that kind of performance. Do a deal, or watch your stock die on the ETF vine, I say.
With that preamble, what deals am I looking for to happen next year? Let's start with the "breaking up is easy to do," transactions that I am anticipating. On Mad Money we have highlighted ten deals where companies have taken it into their own hands to split up their organizations, typically into fast growing divisions with faster growth, and slower-growing divisions with large dividends. That way the growth funds will have their chit and the balanced funds will have theirs in the world of mutual fund asset management.
The archetype for this transaction is the Altria-Phillip Morris split up of a few years ago where a tremendous amount of value was created simply by dividing one hybrid tobacco company into a plodding domestic tobacco entity, Altria(MO), with an outsized dividend and a faster growing international play, Phillip Morris(PM), with a much smaller, but still larger than average dividend. That's the template. It worked. Now it is being imitated everywhere.
Who's next? Who else can do that? Let's start with a small one, Manitowoc(MTW).