Mad Money

Cramer Makes the Case for M&A

Stocks Higher on M&A Deals
VIDEO7:5407:54
Stocks Higher on M&A Deals

Companies with cash-rich balance sheets should really consider a mergers and acquisitions, Jim Cramer said Monday on CNBC's "Mad Money," pointing to three recent transactions that resulted in unusual, albeit positive, movement for acquirer's stock.

Last week, shares of Gannett surged after the largest U.S. newspaper chain announced a $1.5 billion deal to purchase television company Belo. Gannett bought Belo for a 28 percent premium and naturally, the TV company's stock spiked. Gannett itself jumped 34 percent on the day the deal was announced.

Generic drug maker Actavis intends to buy specialty pharmaceutical company Warner Chilcott for $5 billion in stock in an effort to expand its branded drug portfolio, lower taxes and increase profits. Shortly after the announcement late last month, Actavis' stock rose from $105 to $119, a 13 percent move, even as it had already been climbing on the prospect of a deal.

Food maker B&G Foods will acquire Robert's American Gourmet Food, which owns the Pirate's Booty brand, for $195 million in cash. Shares of B&G immediately jumped from $29 to $31, a 2 percent move, on the news. Since the announcement last week, the stock has continued to climb to $33 a share.


Adam Jeffery | CNBC

"This is not normal. Usually, in a takeover, the acquirer's stock goes lower, not higher, if only because of selling pressure from the merger arbitrage guys. Yet we just saw the stocks of three acquirers roar on the news of their takeovers," noted Cramer. "The one thing these mergers all have in common is that they are additive to earnings, which means the analysts need to raise the estimates for the acquirers.

"We're seeing something very simple here: companies that adopt a 'don't just stand there, do something' approach are delivering superior stock values in an increasingly volatile, occasionally hostile environment," Cramer said. "Give what we've seen here, all sorts companies should be jumping all over themselves to make acquisitions, but that's just not happening."

Given many corporate balance sheets are overflowing with cash, Cramer hopes corporate leaders see how investors are rewarding companies that spend cash on M&A by purchasing shares of the acquirer, sending its stock higher.

—Reuters contributed to this report