A buyout announcement is one of the best pieces of news a shareholder can get. Typically, buyout stocks immediately jump to within cents of the buyout price and never look back. Sometimes, however, the market doesn’t trust that the deal will actually go through. That skepticism can leave certain buyout stocks in limbo for months.
Donald Trump was elected on a pro-business platform that promises a reduction in government interference in corporate affairs. On the surface, that attitude seems to be good news for the M&A environment.
Trump’s policies should encourage aggressive M&A activity. He has promised to cut taxes and has discussed a repatriation holiday to allow companies with cash stored overseas to bring that money back into the country.
That’s all good and well, but it doesn’t mean companies will be free to combine at will if mergers threaten competition. In fact, Trump himself has criticized the proposed AT&T Inc. (NYSE:T) merger with Time Warner Inc (NYSE:TWX) as being “an example of the power structure I’m fighting.”
Here are three buyout deals that the market is very skeptical about.
Buyout Deals That Could Fail: Cigna Corporation (CI)
Cigna Corporation (NYSE:CI) shares jumped 12% when rival Anthem Inc (NYSE:ANTM) announced a $48 billion buyout back in June 2015. The buyout price of the deal is around $182 per share, yet CI stock peaked at around $170 in the days following the announcement. CI stock quickly reversed and has spent much of the time since the announcement trading in the $120 to $150 range.
Investors were understandably skeptical of the merger of two of the largest healthcare providers in the U.S. Sure enough, the Justice Department sued to block the deal on antitrust grounds.
Recent history suggests the deal could be in trouble. In January, a federal judge blocked the proposed merger between Aetna Inc (NYSE:AET) and Humana Inc (NYSE:HUM).
“If the judge blocked this deal, there is very little, if any, chance that the Anthem-Cigna deal gets cleared,” Bloomberg Intelligence analyst Jason McGorman said following the news. It looks like this deal may be toast. If the deal goes through, CI stock could see 24% upside. If it falls through, CI stock could be headed down 7.4% to its $137 pre-deal level.
Buyout Deals That Could Fail: Rite Aid (RAD)
The proposed merger between leading drugstore chains Rite Aid Corporation (NYSE:RAD) and Walgreens Boots Alliance Inc (NASDAQ:WBA) is…
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