Although most market players may believe that mergers and acquisitions are "great creators of value and synergy," this is not always the case, Jim Cramer told viewers of his "Mad Money" TV show Wednesday.
Analysts may try to talk acquisitions because that's how they get their bonuses, but there are only some acquisitions worth looking at, he said.
fell from $6 to $5 on Tuesday after news of its merger with
Cramer identified five types of bad acquisitions to help viewers recognize and then avoid the pain they can cause.
"All unhappy acquisitions are unhappy in their own way," he said.
First, Cramer named the "I'm gettin' out while the gettin' is good" acquisition, which happens when the seller is overvalued and wants to get out, he said.
merger is an example that fits into this category and a great reason to dump the stock, Cramer said.
Second on his list is the "don't just stand there, do something" acquisition, in which a company that's in trouble and doesn't know how to get out buys another company, Cramer said.
These companies are "scared and desperate" for a new concept, but according to Cramer, this is "money down the drain."
is an example of this, he said.
eBay's management tried to keep the company rolling by buying Skype, but it ended up costing the company billions and didn't amount to any good for eBay, Cramer said.
"Lousy purchase" -- No. 3 -- or "panic and overpay," occurs when a company is worried about its slowing growth or competition and pays too much for an acquisition, he said.
This differs from bad acquisition No. 2, in that this one makes sense, but just costs too much.
Cramer said that
did this when it grossly overpaid for
and tried to play catch-up with other companies in its sector.
Disaster acquisition No. 4 Cramer dubbed "the two drunken sailors trying to keep each other up" deal. This is when two underperforming companies, which are missing their quarters try to stay afloat by merging, he said.
union fits this category well, he said.
Cramer believes that Alcatel should have either renegotiated or walked out from the deal, but it's too late, Cramer said. People should sell both of these drunken sailors.
The fifth, final and "absolute worst" type of bad acquisition, he said, alluding to Napoleon, is when a little company takes on a bigger company in a bidding war for a third company.
Johnson & Johnson
as an example.
As a result, Boston Scientific overpaid for
and has never been able to recover from it, he said, adding that he believes it was a sell all the way at $25. Boston Scientific was recently at $15.66.
"Boston Scientific was like a rebel without a cause, but not as cool as James Dean," he said. "They lost here."
Takeovers can go either terribly wrong, or they can make you money, Cramer said.
Four stocks that he believes should go higher and make you money because of their
Federated Department Stores
Procter & Gamble
and Johnson & Johnson.
All four of these stocks are a buy, he said.
By Procter & Gamble buying
and Whirlpool buying
, both companies eliminated competition.
Although this may be bad for the consumer, it isn't so for the shareholder, Cramer said.
Federated Stores similarly removed competition and raised its prices.
Acquisitions such as Johnson & Johnson buying
over-the-counter business creates more opportunities for the companies to do what they are good at, he said, calling it a "survival of the fittest" merger.
Bad acquisitions are unique in their own way, but these four all bought competition and strengthened themselves, Cramer said.
Am I Diversified?
In the "Am I Diversified" segment of the show, the first caller owned the following five stocks:
Cramer said while the portfolio was diversified, he was worried about CapitalSource, as it is a company that makes loans.
This is dangerous, he said, and advised the caller to swap out of it and go into
Bank of America
Cramer's second caller owned the following five stocks: Bank of America,
Las Vegas Sands
Cramer said the caller knows how to play the game and called the portfolio diversified.
CEO Tom Werner to the show and asked him about the company's visibility, given that SunPower is the only game in town.
Solar has a great macroenvironment, so people are very biased toward it, Werner said. The fundamental question here is whether we can get it to the right cost or not, but as we scale business, we pull costs out, the visibility is excellent and the outside opportunity is phenomenal, he said.
When Cramer asked if Germany is ahead of the U.S. in solar energy, Werner said "people in Germany fundamentally believe that they need to become energy-independent, so policy followed" in the country.
There is a tariff where people get paid to produce solar power there, he said,
In the U.S., New Jersey and California lead the way and represent 90% of the market, Werner went on to say. Although there is a federal program that expires in a year, and SunPower is working to extend it for eight more years, he said the solar lobby is no where as big as it is for coal or other energies.
To view Cramer's interview with Tom Werner, please click here.
Cramer was bullish on
Bank of America
The Children's Place
Black & Decker
Cramer was bearish on
New Century Financial
In the "Sudden Death" round Cramer was bullish on
He was bearish on
For more of Cramer's insights during the most recent Lightning Round, click here.
Want more Cramer? Check out Jim's rules and commandments for investing from his latest book by
At the time of publication, Cramer was long Sears Holdings, Ingersoll Rand and Yahoo!
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