Cash vs. Stock Mergers

Considering the large number of mergers that have been occuring recently, I figured Money Magazine's article "Mergers Are Hot. You Should Stay Cool." (Apr 2005; pgs. 116-118) would be a somewhat timely article to discuss.

They offer several tips about how to deal with mergers. Read the article as they add more information to each of the points.

• Don't rush in to buy a company being acquired after the announcement.
• Hostile takeovers can be good for the shareholders.
• Beware companies that frequently make acquisitions.
• Stay away from stock deals in popular sectors.
• Cash deals are generally better than stock deals.
• Beware companies that do stock deals when they have cash available.

They also have a couple important statistics to remember. Companies that make acquisitions using stock underperform the similar sized firms by 17.5%, where companies that use cash outperform by 16.3% over the next three years.