takeovers

Is it a good time to bargain hunt for Canadian income trusts? According to one school of thought, Ottawa’s planned 2011 removal of income trusts’ tax advantages has unduly rattled investors and spurred unwarranted selling. That’s the kind of assumption that makes sense, but it’s unlikely to make you any money. Tax-law changes are a drawback for some investors in Canadian income trusts. But the key problem with income trusts is their general lack of investment quality....

Two of our long-time recommendations — Transalta Corp. $37 (Toronto symbol TA; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 199.0 million; Market cap: $7.4 billion; SI Rating: Average) and...

J.P. MORGAN CHASE & CO. $38 (New York symbol JPM; Income Portfolio, Finance sector; Shares outstanding: 3.4 billion; Market cap: $129.2 billion; WSSF Rating: Above average) provides a wide range of banking and other financial services in the United States and over 60 other countries. Morgan recently completed its takeover of troubled investment broker Bear Stearns Cos. Inc. for $1.5 billion in stock. Bear Stearns held about $30 billion in illiquid securities. However, Morgan is only liable for potential losses on the first $1 billion. The Federal Reserve has agreed to cover any losses on the remaining $29 billion.

Quick takeover adds risk

Due to Bear Stearns’ dire circumstances, Morgan had little time to perform the usual due diligence needed for most acquisitions. This increases the chance of an unpleasant surprise. However, Morgan’s experience absorbing other big takeovers in the past few years should help cut its integration risk....

At one time, mutual funds within a particular ‘fund family’ often shared some key investment characteristic, such as a conservative or aggressive investment approach, or a stress on value as opposed to growth. However, due to corporate mergers and takeovers in the mutual-funds industry, and more aggressive marketing, a fund’s membership in a fund family now has little bearing on its investment approach or appeal as an investment. Below, for instance, we analyse five funds from the Ivy Group. (Note that Ivy is now part of Mackenzie Financial, which in turn is part of IGM Financial. The contact information listed for Ivy Growth and Income also applies to the other four.)...

MICROSOFT CORP. $30.45, Nasdaq symbol MSFT, has launched an unsolicited offer to buy Internet search provider Yahoo! Inc. for $44.6 billion in cash and stock. Microsoft will limit the cash portion to 50% of the total payout. To put the price in perspective, Microsoft earned $4.7 billion or $0.50 a share in its second fiscal quarter ended December 31, 2007. The company holds cash of $21.1 billion or $2.26 a share. The offer represents a 62% premium for Yahoo’s stockholders, so a competing bid seems unlikely. Yahoo may try to find other bidders. However, recent writedowns of subprime mortgages have limited the willingness of banks to provide financing for big takeovers like this. Microsoft feels it can save $1 billion in costs a year by combining Yahoo with its MSN online search business. The Internet advertising market is growing fast, and the combination will help Microsoft compete more effectively with market leader Google. The deal would also give Microsoft access to Yahoo’s fast-growing search businesses in Asia....

At Stock Pickers Digest, we look for aggressive investments that combine high potential with low risk. It’s a difficult job. All aggressive investments — ours included — expose you to more risk than you find in the conservative investments we recommend in The Successful Investor, our flagship advisory. (That’s why we advise you to limit your aggressive investments to a third of your total portfolio.) But we try to cut your risk by applying the conservative approach of The Successful Investor. That has the welcome side effect of making takeovers far more common among our buys....

We’ve had a lot of takeovers among our trust recommendations lately, including Primewest Energy, Legacy REIT, Shiningbank Energy and Summit REIT. Here’s another: TRANSALTA POWER, L.P. $8.38 (Toronto symbol TPW.UN; SI Rating: Extra risk) is now the subject of a friendly $8.38 per unit takeover offer from Hong Kong-based Cheung Kong Infrastructure Holdings Limited. TransAlta Corp. has no direct interest in TransAlta Power. However, TransAlta Power owns 49.99% of five gas-fired power plants in Ontario, Saskatchewan and Alberta. TransAlta owns the remaining 50.01%, and runs the plants....

WASHINGTON MUTUAL INC. $29.09, New York symbol WM, earned $0.23 a share in the third quarter of 2007, down 70.1% from $0.77 a year earlier. The drop came from a nearly 500% increase in loan loss provisions, mainly due to weakness in the housing market. Writedowns of asset-backed securities also hurt earnings. Revenue fell 2.9%, to $3.4 billion from $3.5 billion. Washington Mutual hoped that recent moves to cut its exposure to subprime mortgages would make its mortgage operation profitable by the end of 2007. However, losses at this division will likely continue into 2008. The stock fell over 10% on the news. But the company’s other main businesses, retail banking and credit cards, continue to attract new customers and expand revenues. That should help Washington Mutual maintain its $2.24 dividend, which yields 7.7%....

HARTE-HANKS INC. $19.47, New York symbol HHS, has moved down in the past month, partly due to the cancellation of a takeover of a competitor by a private equity fund. Investors saw this as a sign of problems in the consumer data collection industry, in addition to the growing unwillingness of lenders to finance takeovers. Harte-Hanks’ earnings have also suffered recently. Slumping housing markets in California and Florida have hurt demand for real estate advertising at its shoppers newspaper business. Fears that the housing downturn will cut consumer spending have also hurt demand for its direct marketing services. But the company’s strong position in these niche markets, as well as its sound balance sheet, should help it rebound quickly. Harte-Hanks is still a buy for long-term gains....

At one time, mutual funds within a particular ‘fund family’ often shared some key investment characteristic, such as a conservative or aggressive investment approach, or a stress on value as opposed to growth. However, due to trends in the mutual-funds industry such as corporate mergers and takeovers, and more aggressive marketing, a fund’s membership in a fund family now has little bearing on its investment approach or appeal as an investment. Below, for instance, we analyse five funds from the Ivy Group. (Note that Ivy is now part of Mackenzie Financial, which in turn is part of IGM Financial. The contact information listed for Ivy Growth and Income also applies to the other four.)...