Three Stocks Poised to Lose Their Independence
By Richard Saintvilus - 07/04/12 - 8:00 AM EDT
NEW YORK (TheStreet
) -- As we celebrate U.S. independence on July Fourth, it's worth looking at three troubled companies that may soon lose theirs.
There are plenty of other companies that are doing well and have solid balance sheets with plenty of cash.
When companies have a significant cash hoard, investors often pressure them to issue dividends or buy back stock. But investors can also demand that companies put that cash to work with acquisitions. With so many stocks trading at depressed levels right now, I suspect the next two quarters will bring about plenty of M&A activity.
So without further ado, here are three companies that will be likely takeover targets:
Research In Motion
What would an M&A discussion be without Research In Motion? The company has shown a chronic inability to walk and speak
at the same time.
The three main suitors for RIM should be Facebook
You can find my case for Facebook and Sony in "RIM up for Sale: Why Facebook or Sony Will Close the Deal
But the more likely candidate is Microsoft, which I wrote about in "Will Microsoft Save RIM From a Certain Death to Beat Apple?
There are many reasons a Microsoft acquisition makes sense.
All Microsoft would need to do following an acquisition would be to spend spend a few hundred dollars per RIM user to offer replacement phones using the Windows Mobile operating system that also have the BlackBerry email service and RIM's popular BBM messenger service.
That would quickly quadruple Microsoft's Windows smartphone market share.
What's more, a deal would redirect Microsoft's focus to where it should have been in the first place: attacking Google
and the phones and tables that use the Android operating system.
I think Android's success has hurt Microsoft more than Apple
iPhone, and Google has become a threat not only to Microsoft's phone business but also to its Office and operating-system businesses.
Whether Microsoft does a deal remains to be seen, but a deal makes perfect sense.
I don't see how anyone can say with a straight face that Netflix has a future.
After all, Apple is gearing up its TV efforts, and Google will soon carry Sirius XM
content on Google TV.
If that wasn't bad enough, cable giant Comcast
has announced plans to battle Netflix head-on with its own Internet movie-streaming service called Xfinity Streampix.
Netflix lost 9% of its value immediately following the Comcast announcement, and shares stock have been hemorrhaging ever since. The only real question now is, how much time does Netflix have left?
This is a situation where a loss of independence could save a company's life. Though there are some vultures circling the skies, not all of them are in the position to save the company from its ailments.
However, a name that is not often mentioned that could make good use of Netflix's assets is Amazon.com
The question is how much it would take to make a deal happen. With Netflix currently trading for less than $70 -- down from $300 one year ago -- would Reed Hastings and the board accept an offer from any suitor of less than $150 per share?
That said, I don't see how Netflix is in a bargaining position when it's death appears inevitable if it continues to go it alone.
The other name that I believe is ripe for buyout is search giant Yahoo!.
Though the company is now making the some strides, its shares remain lifeless, as I recently wrote
For this reason (among others) Yahoo has had to absorb more punishment from Wall Street than any company deserves.
What it needs is not only a fresh start, but the type of rejuvenation that can only be obtained through an acquisition, by a suitor that can make better use of its current assets.
At this point, a deal with Microsoft no longer makes the sense that it did before the birth of Bing. But such an acquisition is still not impossible.
As down as Yahoo! has been perceived to be in the midst of Google's rise, the company is still a dominant media power and likely will be for many years to come. Its recent content-sharing deal with CNBC
, which is owned by Comcast, has opened the possibility of a Comcast acquisition.
As much as I still value its brand today, Yahoo! now understands its current state of affairs and what is at stake in terms of its future.
After all, its past errors contributed to the company's annual revenue falling from its high in 2008 of $7.2 billion to just $5 billion for fiscal 2011. Over the same period, Google has enjoyed strong revenue increases, and its top line reached almost $40 billion last year.
I think both Comcast and Microsoft and can great use of the value that Yahoo! still has left and squeeze out enough to strengthen their respective offerings.
As often is the case, it comes down to what Yahoo! will accept. It's been a while since the stock saw $20. As it is currently trading for a bit more than $15, I think any offer of more than $20 should be considered seriously.
Although a loss of independence can immediately be perceived as a negative for a company, sometimes it is better than the alternatives. Each of these three companies certainly has value, but each finds itself in a situation where it can't realize that value.
These names should be attractive to other companies, because even though their shares have languished, they still provide recurring revenue and decent cash flow.
At the time of publication, the author was long AAPL.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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