U.S. mergers and acquisitions are poised to rebound as borrowing costs stay near zero and companies deploy their $1.5 trillion in cash, according to a Morgan Stanley report.
Gilead Sciences Inc., Sotheby’s and Smithfield Foods Inc. are among stocks in the Russell 1000 with a higher chance of being acquired compared with other companies, Adam Parker, the U.S. equity strategist at Morgan Stanley, said in a note Tuesday. Health-care providers are among those most likely to receive takeover offers, he said.
“With huge cash on U.S. corporate balance sheets, many investors have been asking about the prospects for an M&A cycle, even if the economy remains more muted,” Parker said in the research report.
About $42 billion in U.S. deals has been announced this year, including Dish Network Corp.’s bid for Clearwire Corp., according to data compiled by Bloomberg. Morgan Stanley made its forecasts using a quantitative model using industry trends and factors such as valuation and dividend yield. Utilities and companies that make household goods have a smaller chance of getting a bid, the note said.
Executives have hoarded cash after the credit crisis, bringing the total to $1.5 trillion excluding financial companies, data from Morgan Stanley showed. The Federal Reserve said last month that it will keep rates near zero as long as the jobless rate is above 6.5 percent and inflation is forecast to be 2.5 percent or less.
Shares in target companies usually rally ahead of an offer, the note said. They surged 22 percent on average from the end of the prior quarter through the day of the offer, based on data compiled by Morgan Stanley. That period is six weeks on average, the report said.
An average of 2.8 percent of the 1,000 largest companies by market value received a tender offer during 12-month periods since 1983, Morgan Stanley said.
Morgan Stanley’s List of Companies with Higher Odds of a Takeover Offer (not in alphabetical order):
Nabors Industries Ltd.
Newfield Exploration Co.
Superior Energy Services Inc.
SandRidge Energy Inc.
Atwood Oceanics Inc.
Graphic Packaging Holding Co.
Compass Minerals International Inc.
Kronos Worldwide Inc.
Walter Energy Inc.
Coeur d’Alene Mines Corp.
Air Lease Corp.
GATX Corp.
Harsco Corp.
R.R. Donnelley & Sons Co.
Sotheby’s
Brinker International Inc.
Lions Gate Entertainment Corp.
Life Time Fitness Inc.
Buckle Inc.
Smithfield Foods Inc.
Hain Celestial Group Inc.
PriceSmart Inc.
Spectrum Brands Holdings Inc.
Fresh Market Inc.
Gilead Sciences Inc.
Express Scripts Holding Co.
Biogen Idec Inc.
Celgene Corp.
Intuitive Surgical Inc.
Assurant Inc.
E*TRADE Financial Corp.
Credit Acceptance Corp.
SVB Financial Group
Equity One Inc.
EchoStar Corp.
First Solar Inc.
CoStar Group Inc.
Brocade Communications Systems Inc.
Telephone & Data Systems Inc.
NII Holdings Inc.
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