With the long labor day weekend over, it’s M&A Tuesday as four companies have announced entering into merger agreements.
In this article, we examine the deals involving Enbridge Inc (USA) (NYSE:ENB), Spectra Energy Corp. (NYSE:SE), Danaher Corporation (NYSE:DHR), and Cepheid (NASDAQ:CPHD) more closely. We will also take a closer look at Alere Inc (NYSE:ALR)’s earnings results and use the latest 13F data to see how the smart money investors from our database are positioned towards these stocks.
Hedge fund sentiment is an important metric for assessing the long-term profitability. At Insider Monkey, we track over 740 hedge funds, whose quarterly 13F filings we analyze and determine their collective sentiment towards several thousand stocks. However, our research has shown that the best strategy is to follow hedge funds into their small-cap picks. This approach can allow monthly returns of nearly 95 basis points above the market, as we determined through extensive backtests covering the period between 1999 and 2012 (see the details here).
M&A For Pipelines
Energy infrastructure companies Enbridge Inc (USA) (NYSE:ENB) and Spectra Energy Corp. (NYSE:SE) have agreed to merge in an all-stock deal that will form the largest energy infrastructure company in North America. In the short term, Spectra shareholders are the winners of the deal, as they will receive 0.984 shares of the new company for each share of Spectra they own. That equates to approximately $40.33 per share based on Friday’s closing prices, which represents an 11.5% premium. In the long term, Enbridge shareholders will also win (assuming that management’s projections pan out). According to their calculations, Enbridge’s management expects the merger to be neutral to its 12% to 14% secured ACFFO per share CAGR guidance through the 2014-2019 time period, and strongly additive to growth beyond 2019. Enbridge shares are down slightly on the news while Spectra stock has rallied by over 9%. Of the around 750 funds that we track, 14 owned shares of Spectra Energy Corp. (NYSE:SE) and 15 were long shares of Enbridge Inc (USA) (NYSE:ENB) at the end of June.
Alere Reports Earnings
Alere Inc (NYSE:ALR) is in the spotlight after reporting results for the second quarter ended June 30. For the time period, the diagnostic firm’s revenue was $611 million, down 2% year-over-year, primarily due to some divestments and the strong dollar. When factoring out those events, Alere’s organic growth was a positive 2%. Net income from continuing operations for the period was a loss of $0.46 per diluted share, versus a profit of $0.11 per diluted share in the prior year period. A total of 41 funds from our database were long Alere Inc (NYSE:ALR) at the end of the second quarter, down by four from the previous quarter.
On the next page, we take a closer look at Danaher Corporation, and Cepheid.
Two months after spinning off some of its test & measurement/industrial assets, Danaher Corporation (NYSE:DHR) is buying Cepheid (NASDAQ:CPHD) for $53 per share in cash, which represents an enterprise value of around $4 billion. Cepheid’s board has already unanimously approved the transaction, which should close in the fourth quarter. Cepheid management said the following about the reason for the sale:
“Looking forward as a part of Danaher and its $5 billion Diagnostics platform, we believe that Cepheid will be able to reach an extended level of customers and patients more quickly than we could have on a standalone basis. Our employees will have more opportunities as part of a global science and technology company that shares Cepheid’s commitment to innovation, and also has the capability to help accelerate expansion of our global market position.”
Predictably, Cepheid shares are up by 52% in morning trading while Danaher’s shares are relatively flat. Our data shows that smart money investors were more bullish on both companies in the second quarter. A total of 54 funds tracked by us owned shares of Danaher Corporation (NYSE:DHR) at the end of June, up by eight over the quarter, while 17 investors were long Cepheid (NASDAQ:CPHD), compared to 13 funds at the end of March