) -- "More money, more problems" isn't just a truism for rappers from the 1990s -- it's also a major issue that's plaguing corporate treasury departments right now.
As I write, U.S. companies are sitting on record holdings of cold, hard cash. How much? Just as the calendar's about to kick over to June, more that 20% of the
value is paid for in cash. That's an absolutely massive cash balance. And it's creating a problem for firms because it's almost impossible to earn meaningful returns in the near-zero rate market we're stuck in.
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On the one hand, companies don't want to part with their huge cash balances; many are still shell-shocked by liquidity crunches from the financial crisis, and want to avoid a similar scenario. But on the other hand, firms are failing shareholders if they can't earn market-beating returns on their cash and refuse to return it in the form of dividends, buybacks, or debt reductions.
That's why mergers and acquisitions are heating up this month.
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In markets where fundamentals are being discounted, mergers and acquisitions (better known as M&A) can provide amazing value for purchasing firms' balance sheets -- and they can provide instant gratification for shareholders in the target firm. Too often, investors think that there's no money to be made once a deal has been announced, but that's just plain wrong; between merger arbitrage opportunities and value creation for acquiring firms, it's worth paying attention to Wall Street's deal book.
And now, with M&A deals coming off decade-long lows, deal volume is starting to spike again.
With that, let's take a look at
four M&A deal stocks worth watching
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In mid-April, life sciences firm
) announced that it had struck a deal to be acquired by larger firm
Thermo Fisher Scientific
) in a $15.9 billion cash deal that would net LIFE shareholders $76 per share. A month and a half later, Life is still trading for a $1.59 discount to the deal value; that's a 2.14% risk premium left in shares right now for merger arbitrageurs.