merger

Diageo plc, $57.21, symbol DEO on New York (ADRs outstanding: 624.9 million; Market cap: $35.8 billion), is the world’s largest premium alcoholic-beverage company. (Each American Depositary Receipt represents four Diageo common shares.) London-based Diageo owns a collection of brands of spirits (77% of sales), beer (21% of sales) and wine (6% of sales). The company was formed in 1997 through the merger of GrandMet and Guinness. Diageo owns some of the most dominant brands in the alcoholic-beverage business, including Guinness stout, Smirnoff vodka, Johnnie Walker scotch whiskies, Captain Morgan rum, Baileys Original Irish Cream liqueur, J&B scotch whisky and Tanqueray gin. Its other spirit brands include Crown Royal Canadian whisky, Buchanan’s whisky, Gordon’s gin, Windsor Premier whisky, Seagram’s whisky, Old Parr whisky, Bushmills Irish whisky, Bundaberg rum and Cacique rum....

ARBOR MEMORIAL SERVICES INC. $17 (Toronto symbol ABO.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 10.7 million; Market cap: $181.9 million; Price-to-sales ratio: 0.7; SI Rating: Average) owns 41 cemeteries, 26 crematoria, four reception centres and 87 funeral homes in eight provinces. In its second quarter, which ended April 26, 2009, earnings fell 7.6%, to $4.9 million, or $0.45 a share. Arbor earned $5.3 million, or $0.49 a share, a year earlier. Revenue rose 3.3%, to $60 million from $58.1 million. The company performed 2.9% fewer funeral services in the quarter, but earned higher fees per service. Demand for funerals could stagnate or drop in the next few years. Many people born in the 1920s have already died, and birthrates were lower in the 1930s and 1940s due to the Great Depression and World War II. The post-war baby boomers have not yet reached their years of highest mortality. But boomers will likely spend more on funerals than their parents. Arbor is a buy....

BHP BILLITON LTD., $60.29, New York symbol BHP, rose 6% on Friday after it agreed to merge its iron-ore mining operations in Western Australia with those of Rio Tinto Ltd. (New York symbol RTP) into a 50/50 joint venture. The partners will split the output equally, and each will sell it through their own marketing divisions. BHP is the world’s largest mining company, with major operations in Australia, South Africa, Chile and the U.K. It produces iron ore, coal, oil, aluminum, manganese, diamonds and titanium. As part of the deal, BHP will pay Rio Tinto an additional $5.8 billion because its Australian iron-ore operations are not as valuable as Rio Tinto’s. To put this figure in context, BHP earned $6.1 billion, or $2.20 per ADR, in the six months ended December 31, 2008. (Each BHP American Depositary Receipt represents two BHP common shares). Australian competition regulators need to approve the merger, but it should close in mid-2010....

PETRO-CANADA, $48.43, Toronto symbol PCA, rose 5% on Thursday after its shareholders voted 96% in favour of the proposed takeover offer from SUNCOR ENERGY INC., $38.47, Toronto symbol SU. Suncor shareholders have also approved the merger by 98%. The deal gives Petro-Canada shareholders 1.28 common shares of the new company for each share they own, while Suncor investors will get one share of the merged company for each of their Suncor shares. Suncor shareholders will own 60% of the combined company, while Petro-Canada shareholders will own the remaining 40%. (The new company will operate under the Suncor name.) Competition regulators still have to approve the merger. However, the deal should close by the end of the third quarter....

MOLSON COORS BREWING CO. $44 (New York symbol TAP; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 184 million; Market cap: $8.1 billion; Price-to-sales ratio: 2.1; WSSF Rating: Average) is the world’s fifth-largest brewer by volume. Its major brands include Coors Light, Molson Canadian and Carling. Molson Coors was formed in February 2005, when Canadian brewer Molson Inc. merged with U.S.-based Adolph Coors Co. The merger let Molson Coors close plants and combine distribution networks in the face of growing competition. Canada is Molson Coors’largest market, accounting for 40% of its 2008 sales and 57% of its gross profit. The U.S. (32% of sales and 33% of profit) was its second largest, followed by the U.K. (28% of sales and 10% of profit). It exports its beers to other markets, such as Asia and Latin America, or licenses them to local brewers....

Global beer consumption rose 14% between 2005 and 2008. However, the recession will probably limit growth to around 1% this year. Moreover, brewers face rising competition from makers of wine and liquor. Consumers have also become more health-conscious in recent years, and are drinking less beer as a result. Still, beer sales should improve as the economy begins to recover, and Molson Coors should be in a good position to profit. The company has cut its costs over the past few years through two big mergers, so any rise in beer sales will have a big impact on its earnings. Molson Coors’low-cost operations also help it cope with volatile raw-material costs and foreign-exchange rates. MOLSON COORS BREWING CO. $44 (New York symbol TAP; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 184 million; Market cap: $8.1 billion; Price-to-sales ratio: 2.1; WSSF Rating: Average) is the world’s fifth-largest brewer by volume. Its major brands include Coors Light, Molson Canadian and Carling....

WINDSTREAM CORP. $8.31 (New York symbol WIN; Income Portfolio, Utilities sector; Shares outstanding: 436.8 million; Market cap: $3.6 billion; Price-to-sales ratio: 1.2; WSSF Rating: Average) provides local telephone and other services to 3 million customers in 16 states. Most of its customers are in rural areas. The company has no wireless operations, so it relies on high-speed Internet services to fuel its growth. Its 1 million high-speed customers represent just 34% of its lines in service, so there’s plenty of room to expand. Windstream uses bundles of local telephone, high-speed Internet and satellite TV services to hang on to customers in the face of strong competition from cable companies. On May 11, 2009, the company agreed to buy D&E Communications, Inc. (Nasdaq symbol DECC), which has about 200,000 phone and Internet customers in central Pennsylvania. The purchase will double the size of Windstream’s Pennsylvania operations, and add $148 million to its annual revenue. The deal should close in the second half of 2009....

VERIZON COMMUNICATIONS INC., $29.61, New York symbol VZ, plans to merge parts of its local-phone operations in 14 states with those of Frontier Communications Corp. (New York symbol FTR). As a result, Verizon shareholders will get one Frontier share for roughly every 4.2 Verizon shares. The company will finalize the exact exchange ratio just prior to the merger. This is a tax-deferred distribution, so investors will only be liable for capital-gains taxes on their new Frontier shares when they sell them. Verizon shareholders will control 68% of the new company. Verizon itself will get $3.3 billion in cash and debt securities. It will probably use the cash to pay down its $55.7-billion long-term debt, which is equal to 66% of its market cap. The assets that Verizon will spin off mainly consist of 4.8 million land lines in rural areas. As of March 31, Verizon had 35.2 million land lines in 25 states. The deal, which will probably close sometime next year, will make Frontier the fifth-largest local phone service provider in the U.S., with 7.1 million lines in 27 states....

GENNUM CORP., $4.80, Toronto symbol GND, fell 9% on Friday after it increased its friendly takeover bid for Ottawa-based Tundra Semiconductor Corp. (Toronto symbol TUN). Like Gennum, Tundra makes chips and components for computer networking hardware, like modems and routers. Gennum’s products also let TV broadcasters store, edit and transfer video signals without losing picture quality. Gennum has increased its bid by 30%, and is now offering $112 million in cash and stock for Tundra. Two-thirds of Tundra’s shareholders must vote in favour of the deal at a special meeting on May 8. If they do, Gennum plans to close the purchase by June 1....

WELLS FARGO & CO., $19.61, New York symbol WFC, jumped over 30% on Thursday after it reported that it expects to post first-quarter earnings of $3 billion, or $0.55 a share. This is more than double the consensus forecast of $0.26 a share. Wells Fargo said the higher earnings were driven by strong growth at its traditional banking services and improved results at its investment-banking division. It also reported that residential mortgage applications rose 64% from the year-earlier quarter. Part of this gain was caused by Wells Fargo’s purchase of Wachovia Corp. earlier this year. Wells Fargo has already written down most of Wachovia’s troubled loans and securities, and is doing a good job of integrating Wachovia’s operations into its own....