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9/4/2012 4:01 PM
Big Week But What's the Catalyst?
Acquirer Stock Spikes a Bullish Signal
This morning Valeant (VRX), Canada's largest publicly traded drug company made a $2.6 billion bid for Medicis (MRX), a maker of acne drugs and wrinkle creams. The offer is 39% above Friday's close and the way the stock is trading suggests the Street expects a bidding war (VRX lost out on Cephalon last year to Teva (TEVA)). Consolidation is important for the market and can mean business is bulking up for a spike in demand. But there is also another interesting trend emerging. The shares of acquiring companies have surged higher on takeover news, a phenomenon that goes against history.
VRX is up 7% today but there have been at least 18 acquiring companies we've tracked at www.wstreet.com that have moved up big time since April. Last week, Hertz (HTZ) shares spiked on news they are taking over Thrifty. I think this reflects a market that is so oversold these deals look like bargains. Heck, Thrifty was $0.73 back in February 2009 so even though it was up more than 118 times from there, the Street still thought this was a great deal (Hertz's market share climbed to 24% from 19% versus Enterprise 39%).
I think there are so many individual names that are significantly undervalued, not reflecting recent gains but profits made over the last decade. The way the Street reacts toward these announcements backs that up. But somehow there has to be a way for the entire market to reflect true value because they all can't be involved in blockbuster acquisitions. Can they?
Acquirers whose shares spiked on the news:
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