On tonight’s MAD MONEY on CNBC, Jim Cramer called for companies with high cash balances to make acquisitions while competitors are dirt cheap and vulnerable. Yesterday, Cramer called for Pfizer (NYSE: PFE) to acquire Allergan (NYSE: AGN) now that Johnson & Johnson (NYSE: JNJ) decided to take out Mentor Corp. (NYSE: MNT) for a huge premium. We recently pondered whether that deal really made Allergan worth less money or more money over the competition. Allergan has been battered as many "self improvements and enhancement surgeries" are being put off because the public is having a major money pinch. Tonight, Cramer gave two more merger candidates and suitors.
He wants to see Illinois Tool Works (NYSE: ITW)buy Manitowoc (NYSE: MTW). The companies got into a bidding war for acompetitor, but Manitowoc won and its stock has been ravaged. ITWcould buy it for a pittance now since Manitowoc has been hit so hard. Not all of the businesses overlap and itcould be a cheap merger that has a sweet revenge side to it.
Cramer also believes that the time has come for Nike (NYSE: NKE) tofinally acquire Under Armour (NYSE: UA) now the smaller company’s stock has beenkilled. It was over $3 billion in market cap last year and barely $1billion now. With Nike having over $2.6 billion in cash and spending$1 billion per year in buying its own stock back, Nike could take out acompetitor and take on another growth engine.
We agree that many larger companies should selectively do acquisitions. Our only issue with this notion is that many of thebig stodgy cash-rich companies are in total lock-down or have goneentirely defensive. The buyers cannot access loans right now and manyhave seen their lines of credit come under review or get cut. Ifthey have debt maturities coming due in the next 18 months they have tokeep the cash for that. The desire to do deals or to spend cash is frequently no different for big public companies than it is for Joe Public when times are tough.
Cramer said he”d have some more merger candidate picks Friday.
Jon C. Ogg
December 4, 2008