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- Why skepticism and negativity are the biggest ingredients in this kind of stock rally;
- And how the Fed's next move will depend on Europe.
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Google Should Buy Twitter, and 9 Other Dream Mergers
Posted on June 16 at 2:10 p.m. EDT
We talk every day about Greece and how hostage we are to this nation of 11 million people, which will no doubt be many million fewer if it defaults because of mass emigration elsewhere. But we don't talk enough about the positive, which is that it keeps the Federal Reserve on hold. And on the eve of a big Fed meeting today we rally because of worries about a cataclysm when Greece defaults. So thanks Greece for giving us an up day.
I am going to use this respite day to dream dreams of takeovers. Why? Because when I see every single health maintenance company, Cigna (CI), Aetna (AET), UnitedHealth (UNH), Anthem (ANTM) and Humana (HUM) in talks with each other, it seems logical to bless pretty much anything happening in the merger arena.
Given that the market loves pretty much any transaction, witness that dog of a stock Coty (COTY) going up gigantically on what may be a colossal overpay for a bunch of old Procter & Gamble (PG) brands, I think it is safe to say we are now in a market where CEOs know that the best thing they can do is go buy another company. If Coty might be willing to pay $12 billion for Wella and a bunch of other tired hair care brands and rally 20%, if every HMO can rally greatly on the thought that they buy out the other companies, it makes perfect sense to put out some dream merger ideas that I think would drive the stocks of both parties much higher.
Let's start with the mea culpa stock of 2015, Twitter (TWTR). I say mea culpa because my charitable trust, Action Alerts PLUS, owns it and I regret that it does because the trust is way down on the position and I fear that without a takeover or a sense that the company's off course -- something I didn't get when the interim CEO spoke last week on CNBC -- then this stock is going lower. It will go lower not because I am bad-mouthing it. Big deal. It will go lower because it is too expensive on an earnings basis.
However, it is not too expensive on a takeover basis. It is worth a terrific amount to the right buyer and the right buyer is Google (GOOGL). Why Google? First of all because Google's stock can't get out of its own way. Did you notice that after years of outperformance Google's stock has become a stinker? It hasn't moved up since December 2013. That's a long time ago. The S&P 500 has gone from 1818 to 2091 in that period. The Dow has gone from 15,875 to 17,872. Yep, Google's stock is just awful.
I think its stock could go up huge if it bought Twitter for a 20% to even 25% premium. Here's why. First, it could fire everyone. And I mean everyone. It has amazing engineers and a terrific salesforce. Twitter could immediately be integrated into its organization. I had felt that either Twitter would reform its wayward ways -- meaning pick a new CEO with direction who isn't weary or from the same product-driven direction as Dick Costolo -- but right now that doesn't look like it is going to happen. Isn't it amazing that literally you could buy a company and fire everyone and do better? That's Google for Twitter.
Now I always say that you shouldn't recommend a stock if the fundamentals aren't that attractive and that's Twitter. But let me tell you how the Google bid comes about. There is a clearly a vacuum at the top of Twitter. So what's to keep Carl Icahn from taking a stake in Twitter and saying this one has to sell itself? I think he could actually make it happen.
OK, another company that makes too much sense not to be acquired: Yahoo! (YHOO). You subtract all of the stuff it owns -- Yahoo Japan, Alibaba (BABA) shares, and you get zero. So why, if you are Verizon (VZ), do you stop at buying AOL (AOL)? Just go pay $50 and buy Yahoo! You get your money back almost instantly and you become a real Internet player. Remember, Yahoo! will be valued at zero. How can Verizon not want to put Yahoo and AOL under the same roof? This one could actually be a needle mover when combined with AOL.
AT&T (T) should buy Yahoo! to keep up with Verizon. You buy something for a small premium to free and you have a winner.
It's time for Qualcomm (QCOM) to buy Skyworks Solutions (SWKS). CEO David Aldrich has done a remarkable job turning the $20 billion Skyworks into the best cellphone parts company there is. The stock of Skyworks, which is up 46%, has been red hot. The stock of Qualcomm, currently valued at $100 billion, is down 11% because it is pegged as being momentum-less because of a variety of snafus. But it's got a ton of money doing nothing. Qualcomm's stock soars on this deal.