Yahoo Finance Amid blossoming M&A, investors graze on ag stocks
No matter how the economy does, or what the Fed decides, we’ve all got to eat. This also applies to big companies, which right now are getting hungrier for aggressive acquisitions.
In the past day alone, the eat-or-be-eaten imperative has driven agribusiness giant Monsanto Co. (MON) to make an uninvited approach of Swiss rival Syngenta AG (SYT), proposing a $45 billion takeover. Syngenta rejected the overture, but the market is viewing this as an ongoing dance.
And Yelp Inc. (YELP) – the online business directory best known for restaurant user reviews – reportedly has put itself up for sale as well. Both moves excited the market, goosing the stocks of the potential targets, and confirming that this M&A cycle is gathering force. The global pace of announced deals this year is the highest since 2007, above $1.3 trillion – right where one would expect it to be this deep into an economic expansion and bull market. All the ingredients have been in place for a while: Stout stock valuations, cheap and promiscuous debt markets and growth-craving CEOs.
Two added factors are at work in this current cycle. One is the long run of financial engineering that so many big companies have pursued, tapping debt markets to buy back their shares rather than invest heavily in growth. While capital spending is now picking up a bit, plenty of companies are finding it easier to make the short hop from buying their own stock to buying all the shares of another company instead.
The other wrinkle this time around is the roving band of well-financed, hyper-confident activist investors pushing big companies to find transactions that could quickly spark shareholder gains. A lot of this is coming together in a handful of sectors that benefit from global scale and arguably have pent-up appetites for consolidation.
One of them is healthcare, where M&A activity is already at an all-time record pace this year. Another is the agricultural realm, where Monsanto and Syngenta are leaders in seeds and pesticides. Which brings me to an interesting investment play on a largely neglected but quietly improving sector. The main exchange-traded fund that tracks the farm-and-crop industry is the Market Vectors Agribusiness ETF – known as the MOO, for its cutesy bovine ticker symbol.
Get the Latest Market Data and News with the Yahoo Finance App
The fund has been chugging sideways, with a slight strengthening tone, for about three years now, forming what a generous trader’s eye would interpret as a firm base. The ETF has a 3% dividend yield, thanks to its allotment of stable, profitable companies. Monsanto and Syngenta happen to be the two largest holdings in the MOO, making up a combined 17% of the portfolio.
Yet they aren’t the only deal names there. Of the top ten holdings, seven have been involved either in mergers, deal proposals or public activist-investor campaigns over the past couple of years. These include Tyson Foods Inc, (TSN), which has been consolidating the meat industry; fertilizer giant Agrium Inc. (AGU), which has attracted a so-called “friendly” activist shareholder; and Zoetis Inc. (ZTS), an animal-health products spinoff from Pfizer Inc. (PFE) than activist Bill Ackman has targeted, placing a representative on the board as it mulls over possible deal prospects. Even an industry under pressure to consolidate is no free lunch for investors.
Deals fall apart, buyers overpay, and the capital markets can grow cranky, compromising financing. But the combination of growing deal appetites, healthy businesses and emerging investor interest make the group make the MOO worth a look. It’s a hungry world, on Wall Street as much as anywhere else, and these companies are in position to feed it.
More from Yahoo Finance
‘Off the grid’ measures reveal volumes about economy
