When acquisitions work

Article Excerpt

Growth by acquisition is a risky strategy, but wisely chosen takeovers can bring big gains. Here are two that make sense to us. INTERNATIONAL BUSINESS MACHINES CORP. $117 (New York symbol IBM; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.3 billion; Market cap: $152.1 billion; Price-to-sales ratio: 1.6; WSSF Rating: Above Average) will buy SPSS Inc. (Nasdaq symbol SPSS), whose software helps companies predict changes in customer buying habits and other trends. The price is $1.2 billion, or about 39% of IBM’s second quarter 2009 earnings. IBM is a buy. AGILENT TECHNOLOGIES INC. $23 (New York symbol A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 343.3 million; Market cap: $7.9 billion; Price-to-sales ratio: 1.5; WSSF Rating: Average) will buy Varian Inc. (Nasdaq symbol VARI), which makes test equipment for drug and medical research. The $1.5-billion price is a big commitment, but it broadens Agilent’s markets beyond the cyclical electronics industry. Agilent is a buy. Great to get credit! Peter Brimelow of Dow-Jones…