recent acquisitions

PLEASE NOTE: This is our last Hotline for 2011. Our next Hotline will go out on Friday, January 6, 2012. AT&T INC., $29.66, New York symbol T, has cancelled its plan to buy rival wireless carrier T-Mobile from Germany’s Deutsche Telekom AG. Adding T-Mobile would have made AT&T the largest wireless carrier in the U.S., with 132 million subscribers. However, the company doesn’t believe that regulators will approve the purchase....

Rising raw material costs are a growing challenge for these two beverage makers. However, their well-known brands give them strong customer loyalty. That makes it easier for them to raise prices without hurting sales volumes. Their growing overseas operations also enhance their long-term prospects. PEPSICO INC. $64 (New York symbol PEP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.6 billion; Market cap: $102.4 billion; Price-to-sales ratio: 1.6; Dividend yield: 3.2%; TSINetwork Rating: Above Average; www.pepsico.com) is the world’s second-largest soft-drink maker after Coca-Cola. It also makes other products, such as Frito-Lay snack foods, Tropicana fruit juices and Quaker Oats. PepsiCo recently raised its selling prices in response to rising ingredient costs. That’s the main reason why its sales rose 13.3% in the quarter ended September 3, 2011, to $17.6 billion from $15.5 billion a year earlier. In June 2011, PepsiCo paid $3.8 billion for Wimm-Bill-Dann, Russia’s largest dairy and juice company. This accounted for a third of the sales gain. Without unusual items, mainly costs to integrate recent acquisitions, earnings per share rose rose 7.4%, to $1.31 from $1.22....

WINDSTREAM CORP. $12 (Nasdaq symbol WIN; Income Portfolio, Utilities sector; Shares outstanding: 515.8 million; Market cap: $6.2 billion; Price-to-sales ratio: 1.5; Dividend yield: 8.3%; TSINetwork Rating: Average; www.windstream.com) has completed its purchase of PAETEC Holding Corp., which sells telecommunication services to businesses in 46 states. Windstream paid $891 million in stock and assumed $1.4 billion of PAETEC’s debt. That gives the deal a total value of $2.3 billion. This is the latest in a series of acquisitions for Windstream. Its recent purchases pushed up its revenue by 6.0% in the third quarter of 2011, to $1.0 billion from $965.8 million a year earlier. However, the costs of integrating these new operations cut its earnings by 16.1%, to $71.5 million, or $0.14 a share, from $85.2 million, or $0.18 a share. As a result of the PAETEC purchase, Windstream will now get 70% of its revenue from selling highspeed Internet and business services. That cuts its reliance on its slow-growing home phone business. As well, the company can use PAETEC’s losses to lower its tax bill over the next five years. That should let its keep paying quarterly dividends of $0.25 a share, for an 8.3% annualized yield....

SHERWIN-WILLIAMS CO. $84 (New York symbol SHW; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 103.8 million; Market cap: $8.7 billion; Price-to-sales ratio: 1.0; Dividend yield: 1.7%; TSINetwork Rating: Above Average; www.sherwinwilliams.com) recently raised its prices to offset the rising cost of oil (Sherwin needs oil to make its paints). That’s partly why its sales rose 14.4% in the quarter ended September 30, 2011, to $2.5 billion from $2.2 billion a year earlier. Recent acquisitions have also fuelled its growth.

However, it will take several months for Sherwin to realize the full benefits of its higher selling prices. Meanwhile, it continues to integrate its recent purchases. As a result, earnings rose a slower pace of 2.6%, to $179.9 million, or $1.71 a share. A year earlier, it earned $175.3 million, or $1.60 a share.

Sherwin recently settled a tax dispute with the IRS. As a result, it will incur a one-time charge of $75.0 million, or $0.72 a share, in the fourth quarter of 2011.

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PEPSICO INC. $64 (New York symbol PEP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.6 billion; Market cap: $102.4 billion; Price-to-sales ratio: 1.6; Dividend yield: 3.2%; TSINetwork Rating: Above Average; www.pepsico.com) is the world’s second-largest soft-drink maker after Coca-Cola. It also makes other products, such as Frito-Lay snack foods, Tropicana fruit juices and Quaker Oats.

PepsiCo recently raised its selling prices in response to rising ingredient costs. That’s the main reason why its sales rose 13.3% in the quarter ended September 3, 2011, to $17.6 billion from $15.5 billion a year earlier. In June 2011, PepsiCo paid $3.8 billion for Wimm-Bill-Dann, Russia’s largest dairy and juice company. This accounted for a third of the sales gain. Without unusual items, mainly costs to integrate recent acquisitions, earnings per share rose rose 7.4%, to $1.31 from $1.22.

PepsiCo continues to expand internationally. In November 2011, it paid an undisclosed sum for privately held Grupo Mabel, Brazil’s second-largest maker of cookies, crackers and snack foods. This business complements the foods that PepsiCo already sells in Brazil, including Frito-Lay chips (sold under the Elma Chips brand) and Quaker Oats snacks.

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INTERNATIONAL BUSINESS MACHINES CORP., $194.56, New York symbol IBM, continues to expand its software business. This week, it agreed to buy DemandTec Inc. (Nasdaq symbol DMAN), which makes software that retailers and makers of consumer products use to analyze their customers’ spending habits. This information helps them predict consumer behaviour and quickly adjust their prices. Adding DemandTec will also enhance IBM’s expertise in fast-growing area of cloud computing. IBM will pay $440 million for DemandTec when the sale closes in the first quarter of 2012. The company earned $3.8 billion, or $3.19 a share, in the three months ended September 30, 2011, so it can easily afford this purchase....

WAL-MART STORES INC. $56 (New York symbol WMT; Conservative Growth Portfolio: Consumer sector; Shares outstanding: 3.5 billion; Market cap: $196.0 billion; Price-to-sales ratio: 0.5; Dividend yield: 2.6%; TSINetwork Rating: Above Average; www.walmart.com) is benefitting from recent acquisitions of retailers in South Africa and the U.K. That’s helping it offset slower growth in the U.S. In the three months ended October 31, 2011, sales rose 8.1%, to $110.2 billion from $102.0 billion a year earlier. Earnings fell 2.5% to $3.5 billion from $3.6 billion, mainly because of a lower tax bill in the year-earlier quarter. Earnings per share rose 2.1%, to $0.97 from $0.95, on fewer shares outstanding. Wal-Mart is a buy.

Commodity investments: Acquisitions help offset weakness in other operations. Ag Growth International Inc. (symbol AFN on Toronto;)), is a

Canada’s big five banks avoided the problems with subprime mortgages and European sovereign debt that have crippled many of the world’s largest financial firms. The big banks are now using their strong balance sheets to make acquisitions, often at bargain prices, and to upgrade their holdings. ROYAL BANK OF CANADA $45 (Toronto symbol RY; Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.4 billion; Market cap: $63.0 billion; Price-to-sales ratio: 1.8; Dividend yield: 4.8%; TSINetwork Rating: Above Average; www.rbc.com) is Canada’s largest bank, with $730.6 billion of assets....

Ag Growth International Inc., $31.95, symbol AFN on Toronto (Shares outstanding: 15.1 million; Market cap: $482.4 million; www.aggrowth.com), is a leading maker of portable and stationary grain-handling, storage and conditioning equipment. The company is based in Winnipeg. Ag Growth sells its products through dealers and distributors in 48 states and nine provinces, as well as in overseas markets, including Russia, Ukraine and Kazakhstan. Ag Growth gets about 60% of its sales from the U.S., followed by Canada (23%) and overseas (17%). The company started out as an income trust. It first sold units to the public at $10 each, and began trading on Toronto in May 2004. In June 2009, it converted to a conventional corporation and changed its name from Ag Growth Income Fund to the present form....