Takeover Mania

In this tape, everything seems like a "takeover candidate." In fact, it is probably the biggest story of 2007 as takeover mania continues to pick up size and speed. Just about every day if you look at the top gainers list you'll find companies soaring that have just received some takeover bid or related chatter. In fact, I'd say that "but for" the persistent M&A activity, this market would likely be about -10% lower if not more.

I'm not sure it is a sentiment tell, but there are already a number of websites trying to take advantage of this trend. For example, a website called PortfolioChallengeGainers now suggests that the path to beating the CNBC Million Dollar Portfolio Challenge is to base your strategy on finding the next takeover. They even provide the following stock screen criteria to find the next takeover candidate:

• Marketcap between $500M to $15B

• TTM Revenue between $150M to $12B

• TTM Operating Income greater than $10M

• TTM Net Income must be positive (> 0)

• Shareholders' Equity (book value) greater than $200M

• Debt/Equity ratio less than or equal to 0.50

• Price/Equity ratio less than or equal to 5.0

• Cash and Equivalents greater than or equal to $5M

• Price/EBITDA ratio less than 14.0

• Price/Sales ratio less than 4.0

• Closing Price less than $200.00 per share

• Debt/Cash ratio less than or equal to 23.0

• Price/Earnings ratio less than or equal to 100.0

For those of you who don't want to run the screen on your own, here are the current takeover prospects.

Although this is not today's story, I do wonder what affect this will eventually have for the market. At some point you have to think that we'll see a reversal of this takeover trend as companies try to unlock "value" (or otherwise bail out from their too aggressive spending spree) by putting the companies back on the open market again. But, we'll cross that bridge when we come to it and that seems to be the mood of the moment. The key is to remember that no trend like this lasts forever and there's always pain following large market manias. This one won't be any different.