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Newton's In Search Of The Perfect Investment. Technology Investor. Previous Columns
8:30 AM Wednesday, February 16, 2005: There are many reasons takeovers happen:

1. When management can't grow the old business, it looks for a new business.
2. If you're a public company, buying things is ultra-cheap. Just print share certificates.
3. Some companies make a bid to attract other, higher bidders, thus making their own shares more valuable. This may be the case in the Highlands' bid for Circuit City.
4. Wall Street makes huge fees. It identifies takeovers, then peddles the idea aggressively to management. It's hard to resist Wall Street when it also writes analyst reports on your company, recommending (or not recommending) your shares.
And not the least, management stands to make out like a bandit: It gets paid in cash. James Kilts, Gillette's chairman and chief executive, made $153 million personally by selling Gillette Co. to Procter & Gamble Co. Carly did well by buying Compaq, etc.

About 70% of all mergers don't work long-term. The reason is typically different corporate cultures. The acquiring company tries to impose its ways on the company it bought. The management of the bought company then leaves in disgust, but rich. There are few good buyers. Two I can think of are Berkshire's Warren Buffett and News Corp.'s Rupert Murdoch. Both encourage the management to stay and encourage them to manage the way they see fit. But, in most companies, egos gets in the way and fails. The largest ego to fail recently was Carly's acquisition of Compaq.

Wall Street investment bankers make fortunes "advising" firms on being bought, being sold, protecting themselves against being bought, etc. Acquisitions happen in waves, often at the end of a bull market. We're in one of those Acquisition Phases at present. Yesterday I asked my readers for their best takeover ideas. Here are some:

from Dan Good
Big drug makers such as Pfizer, Merck and Glaxo are likely to consider acquisitions this year. Possible targets could include Bristol, Wyeth and AstraZeneca.

from Rob Moody
Siebel Systems (SEBL) by SAP (STMP) by Pitney Bowes (PBI)
Chiron Corporation (CHIR) by GSK

from Tobey Price Hubbard
I’ll give it a unique twist with a focus on real estate, more specifically retailers which could provide a liquidation premium to an acquirer due to the estimated value of real assets held on their balance sheet. Outside of an M&A event I find it difficult to believe most will be around in their current form for any length of time.

Recent Stock Price
Estimated Value of Real Estate per Share
Winn-Dixie (WIN)
Saks (SKS)
Dillard’s (DDS)
ShopKo Stores (SKO)

from Frank Derfler
I should have seen Circuit City coming. In a mushrooming section of Tampa they lucked out and have a store that has no convenient competition from Best Buy or practically anyone else. But, even there, when you walk into the store you always feel the sword hanging. “How do these guys compete?” You wonder.

I haven’t looked at any financials. I don’t know if these retailers are owned by somebody bigger that can carry them forever, but I’ll simply report that I get the same “hanging sword” feeling in:

Winn-Dixie … they have some good locations, but many stores are vacant of shoppers. They need marketing, marketing, and some more marketing. I’ll bet that someone out there can provide it after a takeover.

K-mart …. The latest store closings probably helped. The new store layout and floor polish are great. Yes, K-mart is a necessary balance to Wal-Mart, but still… it is moving uphill against a headwind.

Office Depot/ Office Max… yes, they were told they can’t merge, but that was a shortsighted and artificial decision. Something has to happen there.

CompUSA… exactly the same feeling as Circuit City.. only maybe a little worse. They continue to try to get by on thinner margins on lower prices.

from Brett Kane:
I believe XM Satellite Radio will buy Sirius. This is going to be big business.

from Harry Newton (that's me)
Independence Community Bank (ICBC) and TriPath Imaging (TPTH)

from name protected:

My favorite takeover target...Is my employer and your favorite German bank; Deutsche Bank. There is endless speculation about the Vorstand cost-cutting to the bone to make the securities arm of the group look more attractive for sale, including cutting more people than they can afford to. Last suitor was Citibank, however, "Zee Germans" could not tolerate the thought of Americans buying them out. Unfortunately, as the old saying goes: "A polished turd is still a turd."

Microsoft's anti-spyware software: Spyware is insidious. You visit a site on the Internet and before you know it, the site has installed software on your computer, which reports some of the things you do on your computer to someone somewhere on the Internet. The definition of spyware has to do with software that is installed on the user's PC for the financial benefit of someone else without the user's full knowledge and consent. Such programs range from relatively harmless -- telling a distant computer which web sites a user visits to capturing the user's social security number and sending it to someone who's intent on stealing the user's financial identity. There are two reasons you don't want spyware on your machine:

1. It can steal your identity.
2. It can slow your machine down to a crawl.

The major problem with spyware is that it's hard to find and hard to remove. I have previously recommended two programs to rid your computer: Lavasoft's Ad-Aware and Spybot's Search and Destroy. I'm writing this today because Microsoft is now giving away a beta version of its brand-new spyware called, naturally, Microsoft AntiSpyware. You can pick up a free copy of here.
Click here. This morning I ran the three programs on one of my PCs. Results:

+ Microsoft said I had no spyware.
+ Ad-Aware said I had 11.
+ Search and Destroy said I had 17 -- even after Ad-Aware had removed 11.

My conclusion and recommendation is there is no one magic program and that you now need to run all three at least once a month. Which gives boredom a whole new meaning. Sorry.

My son's birthday today: He's 23. Would some stock in Greenfield OnLine (SRVY) be an appropriate present? If my son had real talent, he'd have a real job. Sadly, this is not him. This is some other father's son who clearly has real talent. Check this incredible video out. Click here. You need a broadband connection.

Yet another scam: Watch out for this one:
"I am MR. KIMAEVA LIOUDMILA,the personal accountant to Mikhail Khodorkovsky the richest Person in Russia and owner of the following companies: Chairman CEO: YUKOS OIL (Russian Largest Oil Company) Chairman CEO: Menatep SBP Bank (A well reputable financial institution with its branches all over the world). I seek your partnership to accommodate the sum US$423M for us. My Boss got arrested for his involvement on politics in financing the leading and opposing political parties (the Union of Right Forces, led by Boris Nemtsov, and Yabloko, a liberal/social democratic party led by Gregor Yavlinsky) which posed treat to President Vladimir Putin second tenure as Russian president before he was reelected On March 14, 2004. I will present you/your company as one of the contractors we are owing so that you can stand as the beneficiary of the above quoted sum or part of the fund according to your financial strength or the strength of your company. I will arrange for the documentation which the payee bank will need to transfer the sum to you. The transaction has to be concluded before as soon as possible. You will be rewarded with 10% of the total sum for your partnership. Can you be my partner on this?"

Stupid is as Stupid Does. I love this one. It reminds me of the "logic" I hear every day on Wall Street.
Airline Captain walks into a sports bar at his layover hotel around 9:58pm. He notices one of his Flight Attendants from his crew and sits down next to her and stares up at the TV. The 10:00 o'clock news was on. The news crew was covering a story of a man on a ledge of a large building preparing to jump.
The Flight Attendant looks at the Captain and says, "Do you think he will jump?"
The Captain says, "You know, I bet he'll jump."
The Flight Attendant replied, "Well, I bet he won't."
The Captain places $20 dollars on the bar and says, "You're on!"
Just as the Flight Attendant placed her money on the bar, the guy did a swan dive off of the building, falling to his death. The Flight Attendant was very upset and handed her $20 dollars to the Captain and said, "All is fair. Here is your money."
The Captain replies, "I can't take your money. I saw this earlier on the 5 o'clock news and knew he would jump."
The Flight Attendant replies, "I did too, but I didn't think he'd do it again."

Harry Newton

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads. Thus I cannot endorse any, though some look mighty interesting. If you click on a link, Google may send me money. That money will help pay Claire's law school tuition. Read more about Google AdSense, click here and here.
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