Dow Jones Investment Banker’s Columnists Predict Big Names in Household Products, Appliances and Retail Among Companies That May Be in Play This Year

February 8, 2011

NEW YORK, Feb. 8, 2011 /PRNewswire/ — Forecasting a revitalized merger and acquisition market, the editorial team at Dow Jones Investment Banker is predicting with “high conviction” 12 major deals and capital-raising actions in 2011. Household products manufacturer, Church & Dwight and DVR innovator, TiVo are likely acquisition targets, according to Dow Jones Investment Banker’s columnists. They have also issued 11 “provocative” predictions including the sale of GE’s appliance business to China-based Haier and the sale of part of its Lloyds Banking Group by the British government.

“With organic revenue growth continuing to present challenges, strong corporate balance sheets and cooperative debt markets we expect to see a resurgence of merger and acquisition activity in 2011,” Arindam Nag, deputy managing editor for Dow Jones Investment Banker said. “Many long-dormant corners of the capital markets are positioned to revive in 2011. A steepening yield curve will prod convertible bond issuance toward old highs. New legislation will jump-start the U.S. covered bond market. Pooled aircraft-backed securities will make a comeback. And strapped municipalities will turn to public-private partnership structures to dig out from under liabilities.”

“High Conviction” Deals

The high conviction predictions — those deals that the Dow Jones Investment Banker editorial team views as most likely — include:

  • Fast Retailing Will Buy Foreign Growth - Aggressive 10-year sales targets and poor same-store sales growth over the past few months for Japan’s Fast Retailing (FRCOY.PK), the holding company for Uniqlo, could accelerate the push for overseas targets, particularly outside Asia, where it has less brand recognition and more growth potential.
  • After Winning Patent Case TiVo Will Be Acquired – TiVo (TIVO) offers a great interface, prime set-top box real estate and flexible software solutions–all at a modest valuation. Prevailing in patent litigation with Dish Network (DISH) should make TiVo a compelling asset for a cable operator, hardware manufacturer or content provider.
  • A Takeover Of Church & Dwight Co - Following Unilever’s (UL) $3.7 billion move to acquire Alberto-Culver (ACV), European buyers looking to expand their profit pool into a key consumer-driven market like the U.S. would find Church & Dwight (CHD) attractive.
  • Eaton Will Issue Debt To Fund Pensions - As of year-end 2009, Eaton’s (ETN) pension plan was only 57% funded and that is unlikely to have changed. Eaton should follow the example of DuPont (DD) and JCPenney (JCP) by raising debt at currently low rates to make voluntary contributions to the plan.

“Provocative” Predictions

While not probable, the provocative predictions have a compelling logic and could create value, in the opinion of the team. The predictions include:

  • Haier Electronics Will Buy GE Appliances - With GE’s stock in the doldrums, shareholders wouldn’t balk at cashing out of a business that, whatever its iconic status, accounts for just 2% of profits. GE had hoped to get $5 billion to $8 billion for the unit in 2008, before it called off the sale. That would put it well within reach of Haier (HRELF.PK), which has a market cap of roughly $25 billion and little debt.
  • U.K. Will Sell Part Of Its Stake In Lloyds Banking Group - The U.K. government could make a play on the economic and market recoveries by selling some of its stake in Lloyds (LYG). In the second half of 2011, if Lloyds’ share price rises 10% and the markets are still stable, the government could surely find buyers for a portion of its 41% stake in Lloyds.
  • Foot Locker Should Accelerate Returns To Shareholders - The U.S.-based sports apparel retailer can afford to accelerate returns to shareholders by buying back a large block of stock. Foot Locker (WOO.F) is strong enough to add some debt, its apparel offerings have improved and allocation and distribution systems have been updated.
  • H-P Will Separate Its Non-Enterprise Operations - Hewlett-Packard’s (HPQ) largest revenue contributor, Personal Systems Group, has the lowest operating margins and earnings multiple, while the smallest revenue contributor, Software, has the highest margins and multiple. If they were split, the remaining enterprise portions of H-P would be more focused and the conglomerate discount could narrow even before further investment in the high-margin software segment.

Additional background material on each of the 23 deal predictions can be found at http://img.en25.com/Web/DowJonesFIS/DJIB_2011DealPredictions.pdf. For more information about Dow Jones Investment Banker, visit http://www.dowjones.com/ib/.

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