Corporate merger activity is rising as many public companies are looking to put to work the large cash holdings that have built up over the last two years. Private equity firms are also heavily involved in these deals as they look to the resurgent stock market to exit old deals and generate returns for future investors with new purchases. Here's a look at the winners and losers from some deals announced over the last few months. (Learn about what makes an M&A deal go wrong in Biggest Merger and Acquisition Disasters.)

TUTORIAL: Exchange-Traded Fund (ETF) Investing

Wireless Consolidation
In March 2011, AT&T announced the purchase of T-Mobile USA from Deutsche Telekom AG for $39 billion in cash and stock. The deal immediately raised protests from AT&T's remaining competitors, as it would give the company 129 million customers, making it the largest wireless provider in the U.S.

AT&T and its shareholders are clear winners as the stock has rallied 10% since the deal was announced, an atypical performance as the acquirer usually sees weak performance after a major deal. The company also takes out a large competitor and one that has a reputation as a discounter in the wireless business.

Intuitively, the consumer appears to be the loser as less choice of providers is never a positive development. AT&T argues that there will still be multiple providers in most markets and that the deal will improve service quality for customers of both companies. A lobbying battle is shaping up in Washington, D.C,. as AT&T lines up against the rest of the wireless industry to get the deal approved.

Vertical Integration
On April 15, Chesapeake Energy announced the purchase of Bronco Drilling at $11 per share in a cash deal worth approximately $315 million. Bronco Drilling is a land oil driller that owns 22 rigs operating in various onshore areas of the United States.

Chesapeake Energy and its shareholders are winners; Chesapeake paid only a 6% premium to the closing price of Bronco Drilling on the day before the deal was announced. The company also gets additional rigs to add to its Nomac Drilling subsidiary, which already owns 95 rigs. Chesapeake Energy is ramping up its drilling in the United States and has now secured ample rig supply through 2012.

Bronco Drilling's shareholders received only a 6% premium, a pittance compared to other recent deals. However, the deal was at a 24% premium to the average price of Bronco Drilling over the previous 90 days. Also, the stock has nearly tripled since December 2010 due to the strong rally in energy in 2011.

Culture Clash?
On April 19, Wal-Mart announced the purchase of Kosmix, a social media site founded in 2005. The company hopes to use the Kosmix platform to promote social and mobile commerce to capture additional sales. Wal-Mart did not disclose what it paid for Kosmix, but unconfirmed reports put the price at more than $300 million.

Venky Harinarayan and Anand Rajaraman, the founders of Kosmix, are the obvious winners as they are likely to walk away with untold millions. This is not the first home run for the two as they created Junglee, a major shopping search engine, and sold it to Amazon in 1998.

The losers here might well be Kosmix, as the corporate culture of large companies like Wal-Mart might not be conducive to the nimble and unconventional decision making process that marks entrepreneurial startups in the technology sector. (This analysis tool is an effective way to value mergers and acquisitions. The deal's on the table, but should you sign the papers? Check out Accretion / Dilution Analysis: A Merger Mystery.)

Emergency Medical Services Corporation recently announced that Clayton, Dubilier & Rice, LLC, a private equity firm, was taking the company private for $64 per share in cash. However, any initial joy experienced by shareholders was quickly dampened after a quick check revealed that this offer was 9.4% below the closing price prior to the offer.

The lack of premium in the take-under deal may have been due to Emergency Medical's sharp rise beginning in mid December 2010, when the company indicated that it was looking for a buyer.

Lawyers may the big winners as the below-market offer spurred several law firms to begin investigations. Many analysts see Clayton, Dubilier & Rice, LLC, as a winner as well, because they believe Emergency Medical Services was worth more than what the private equity firm paid for it.

Investors who purchased Emergency Medical Services Corporation over the last four months are looking at a minor loss.

The Bottom Line
Corporate deals are proliferating as companies look to spend part of the cash that was squirreled away during the recent recession and financial crisis. These recent deals have produced both winners and losers. (Learn about the components of the statement of financial position and how they relate to each other. See Reading The Balance Sheet.)

Related Articles
  1. Markets

    The Biggest Private Equity Firms In India

    Learn about the leading private equity firms operating in India and which companies and industries are attracting foreign investment dollars.
  2. Financial Advisors

    Are Alternatives Right for Your Portfolio?

    Alternative investments are increasingly making their way into retail investors' portfolios. Are they a good fit?
  3. Fundamental Analysis

    Top Private Equity Bargains for Your Portfolio

    Investing in private equity firms can lead to long-term profits.
  4. Economics

    Explaining Quality Control

    Businesses use quality control to ensure their products and services meet a certain standard, as well as any industry regulations.
  5. Professionals

    Consider A Career As A Financial Communications Professional

    Regulators, sales people and clients all look to communications professionals to help them navigate the markets.
  6. Stock Analysis

    Toys 'R' Us Stock Doesn’t Exist: Here is Why

    Learn why investors cannot trade stock in toy retailer Toys 'R' Us. This privately traded company could be a hot IPO candidate for the future.
  7. Markets

    Dell Stock Doesn’t Exist. Here is Why

    Learn why Michael Dell took his namesake company private after being publicly traded for 25 years. Discover why going private is helpful for the company.
  8. Stock Analysis

    Is There Any Upside Left for Walgreens?

    Walgreens is about to get much bigger, but does bigger equal better in this case?
  9. Investing Basics

    How Junk Food Earns Mondelēz $35B a Year

    How and why Mondelēz spun off from Kraft. Where the company is going, and how it profits on multiple continents.
  10. Economics

    What Is Servant Leadership?

    Servant leadership emphasizes innovation, employee empowerment, and the development of leaders who serve an organization’s stakeholders first.
  1. Do hedge funds invest in private companies?

    Hedge funds normally do not invest in private companies because of liquidity concerns. Capital funding for private companies ... Read Full Answer >>
  2. Who do hedge funds lend money to?

    Many traditional lenders and banks are failing to provide loans. In their absence, hedge funds have begun to fill the gap. ... Read Full Answer >>
  3. Can mutual funds invest in private equity?

    Mutual funds can invest in private equity indirectly by buying shares of publicly listed private equity companies, such as ... Read Full Answer >>
  4. How long does it take to execute an M&A deal?

    Even the simplest merger and acquisition (M&A) deals are challenging. It takes a lot for two previously independent enterprises ... Read Full Answer >>
  5. What are some common accretive transactions?

    The term "accretive" is most often used in reference to mergers and acquisitions (M&A). It refers to a transaction that ... Read Full Answer >>
  6. What does residual value represent in a private equity investment?

    It is common to see a private equity investment's net asset value, or NAV, referred to as its residual value, since it represents ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center