Three big mergers coming along nicely

Article Excerpt

We’ve often pointed out that growth by takeover or merger is riskier than internal growth. It’s especially risky when companies make a habit of it. However, well-established companies do sometimes pole-vault over their growth targets with well-thoughtout, well-timed, one-of-a-kind mergers, with or takeovers of, well-established companies that have complementary profit centers or growth potential. These three companies have done just that recently. Right now, however, only two are buys. FEDERATED DEPARTMENT STORES, INC. $71 (New York symbol FD; WSSF Rating: Average) operates around 990 department stores in 45 states. In August 2005, Federated paid $11.7 billion in cash and stock for rival May Department Stores Co. Thanks to the merger, Federated’s sales rose 65.7% in its third fiscal quarter ended October 29, 2005, to $5.8 billion from $3.5 billion. On a same-store basis (excluding the May stores), Federated’s third quarter sales grew just 0.6%. Federated had to borrow the cash to buy May. That increased its long-term debt from 0.4 times equity at the end…

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