Acquisitions Done Right

Cramer's looking to buy AlliedSignal, one of the few companies able to successfully acquire other businesses.
Author:
Publish date:

What do you do when one of your stocks makes an acquisition and opens down a couple? If it is

AlliedSignal

(ALD)

and the company says the acquisition is accretive for next year, I am a buyer. And right now, I am trying to get some AlliedSignal in down a couple.

Some guys know how to do acquisitions. AlliedSignal is one of those guys. Even the decision to keep the real brand name

Honeywell

(HON) - Get Report

tells me this one will work.

I feel the same way about

Tyco

(TYC)

, another company that knows how to do acquisitions. I am not long Tyco, but I am hoping that people freak out about its

Williams

acquisition in London and send it down to where I can buy it.

Why am I so contrary when people are freaking out about acquisitions and bailing? Simple: About 10 years ago, I owned

American Brands

when it made a giant acquisition which everyone told me would be the end of the stock. It ruined near-term prospects. It obliterated the takeover potential. It destroyed management's focus. I owned 100,000 shares; it was my biggest position. I decided to unload the whole position at the opening.

If you take a look at a 15-year chart of

Fortune Brands

(the new name for American Brands), you can see the damage I, and some of my more panicked compadres, did to the stock. It never traded lower and then had a multiyear ramp that would have made me a fortune.

Acquisitions per se aren't good or bad. If you take a look at the June 21 issue of

Fortune

(another fantastic edition of that great magazine), there is a vicious and all-too-accurate article about

MedPartners

(MDM)

and its ridiculous acquisition policy. It is an incredibly well-reported and well-written piece (hats off to Peter Elkind). These guys did

not

know how to do acquisitions, and the stock tanked.

AlliedSignal, on the other hand, grows by buying companies, trimming fat and integrating the businesses. So if it gets hit, I am a buyer.

First trade of the day.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long AlliedSignal. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

jjcletters@thestreet.com.