merger

VERIGY LTD. $8.84 (Nasdaq symbol VRGY; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 60.0 million; Market cap: $530.4 million; Price-to-sales ratio: 1.1; No dividends paid; TSINetwork Rating: Extra Risk; www.verigy.com) designs and makes test systems that are used in the production of computer chips. The company recently agreed to acquire rival LTXCredence Corp. (Nasdaq symbol LTXC) in an all-stock deal. Verigy shareholders will own 56% of the combined company, which will keep the Verigy name and trading symbol. LTX investors will own the remaining 44%. The merger will let Verigy offer its customers a wider variety of testing systems, and expand its market share. As well, the company feels that combining manufacturing and other operations will save it $25 million a year....

DEL MONTE FOODS CO., $18.83, New York symbol DLM, has accepted a $19.00-a-share takeover offer from a private equity group led by KKR & Co. (New York symbol KKR). The company has until Janury 8, 2011, to seek a better offer. If it can’t find another buyer, the deal with KKR should close by March 31, 2011. The stock is trading at 0.9% below the offer, which indicates that investors do not expect a higher offer....

These four companies dominate their niche markets. That gives them protection from new competitors, and helps them stay profitable during economic downturns. Still, only three are buys right now. AGILENT TECHNOLOGIES INC. $36 (New York symbol A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 346.0 million; Market cap: $12.5 billion; Price-to-sales ratio: 2.3; No dividends paid; TSINetwork Rating: Average; www.agilent.com) makes testing systems that help improve electronic products, such as cellphones and networking equipment. In May 2010, Agilent bought Varian Inc. for $1.5 billion. Varian makes a wide range of medical and drug-testing equipment, such as mass spectrometers that detect and measure substances in blood and other samples. Medical-equipment demand is less cyclical than testing products, so this move cuts Agilent’s risk....

DEL MONTE FOODS CO., $17.51, New York symbol DLM, jumped 11.5% on Friday. That’s because of media reports that private equity firm KKR & Co. (New York symbol KKR) will soon launch a takeover bid for the company. KKR’s offer could be as much as $18.50 a share. Del Monte makes canned fruits, vegetables, sauces and soups. It also makes pet food under the Meow Mix, 9Lives and Milk-Bone brands. Even if an offer fails to materialize, we still like Del Monte’s long-term prospects. Cost cuts continue to increase its profitability. As well, it has plenty of room to expand in developing countries. Right now, international markets account for just 6% of its sales....

LEON’S FURNITURE LTD. $13.45, symbol LNF on Toronto, reported that its sales fell 4.2% in the three months ended September 30, 2010, to $179.5 million from $187.4 million a year earlier. Earnings per share rose 18.2%, to $0.26 from $0.22. The stronger Canadian dollar was the main reason why Leon’s earnings rose despite the lower sales. The higher dollar cuts the cost of furniture the company imports. Leon’s was also able to lower some of its other costs. Right now, the company owns 39 of its stores, and franchisees operate 28. Leon’s plans to speed up its expansion by opening roughly five new stores a year over the next five years....

MOLSON COORS CANADA INC. (Toronto symbols TPX.A $50 and TPX.B $49; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 186.1 million; Market cap: $9.3 billion; Price-to-sales ratio: 2.6; Dividend yield: 2.3%; TSINetwork Rating: Average; www.molsoncoors.com) continues to enjoy the benefits of its February 2005 merger with U.S. brewer Coors, and its 2008 combination of its U.S. operations with those of SABMiller to form a new joint venture called MillerCoors. The savings from these two deals are helping it compete with larger, multinational brewers. In the three months ended September 25, 2010, the company’s beer volumes fell 4.0%. However, earnings before merger costs and other unusual items rose 12.3%, to $239.1 million, or $1.28 a share (all amounts except share prices and market cap in U.S. dollars). A year earlier, Molson Coors earned $212.9 million, or $1.14 a share. Savings from the MillerCoors merger and other costs cuts totalled $58.9 million in the latest quarter. Molson Coors is a buy. The more liquid “B” shares are the better choice.

ADOBE SYSTEMS INC., $26.99, Nasdaq symbol ADBE, jumped as high as $28.90 a share this week on reports that MICROSOFT CORP., $24.24, Nasdaq symbol MSFT, may launch a takeover offer for the company. A merger could help Microsoft compete in the fast-growing field of software for smartphones. Right now, Apple’s iPhone and phones powered by the free Android system, which is made by Internet-search provider Google Inc., dominate this market. Microsoft hopes to improve its market share with its upcoming Windows Phone 7 operating system. Adding Adobe’s Flash video software could give Windows Phone 7 an advantage over Apple and Android phones. As well, Adobe’s products could help Microsoft develop new software for touch-screen tablet computers....

FORTRESS PAPER, $42.27, symbol FTP on Toronto, has entered into agreements to supply dissolving pulp to two companies that make rayon products in China. Dissolving pulp is a type of cellulose mainly used in products made of rayon, including clothing. This fibre has strong growth prospects, particularly in warmer regions with growing economies, such as Asia and South America. Fortress will begin supplying dissolving pulp from its specialty cellulose mill in Quebec in the third quarter of 2011. This mill, which should start up in mid-2011, is expected to be able to produce more than 200,000 air-dried metric tons of dissolving pulp per year....

BELL ALIANT REGIONAL COMMUNICATIONS INCOME FUND $26 (Toronto symbol BA.UN, Conservative Growth Portfolio, Utilities sector; Units outstanding: 127.4 million; Market cap: $3.3 billion; Price-to-sales ratio: 1.1; Dividend yield: 11.2%; SI Rating: Above Average) provides telephone services in Atlantic Canada, as well as rural parts of Ontario and Quebec. BCE owns about 45% of Bell Aliant. At current prices, it would cost BCE $1.8 billion to buy the remaining units. In the first half of 2010, BCE’s cash flow was $1.4 billion, or $1.81 a share, so it could easily afford to buy both CTV and Bell Aliant. However, there’s little overlap between BCE and Bell Aliant, so there would be few cost savings from a merger. Still, the possibility of a takeover adds to Bell Aliant’s appeal....

Canon and Xerox dominate the office copier and printer market. But both are lowering their exposure to this cyclical business: Canon has expanded into consumer products, such as cameras, while Xerox is focusing on selling supplies and services, which are more profitable than equipment sales. CANON INC. ADRs $41 (New York symbol CAJ; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.2 billion; Market cap: $49.2 billion; Price-to-sales ratio: 1.2; Dividend yield: 2.5%; WSSF Rating: Above Average) makes copiers and printers (58% of revenue), cameras (28%), and optical products, such as chips for specialty lenses for TV sets and medical equipment (14%). The company gets 80% of its revenue from outside Japan. In the three months ended June 30, 2010, Canon earned $768.6 million, or $0.62 per ADR (each American Depositary Receipt represents one Canon common share). That’s big jump from the $162.6 million, or $0.13 per ADR, it earned a year earlier....