Investors are rewarding companies of late for making strategic deals, but the reaction could be over-exuberance that overlooks the risks involved. Traditionally, an acquirer's stock can be expected to fall after it announces a major acquisition. But in half of the top 20 deals this year, the buyer's stock was rewarded in the first day of trading after the announcements. Earlier this week, for instance, ConAgra Foods Inc (CAG.N) shares hit their highest level in more than a year after the maker of products such as Slim Jim meat snacks and Healthy Choice meals made an unsolicited $4.9 billion bid for rival Ralcorp Holdings Inc (RAH.N). Deals have also become more expensive. Acquirers have paid roughly 13.8 times trailing earnings before interest, taxes, depreciation and amortization on average in 2011, the highest that measure has been since 2007.
ConAgra Foods, Inc. (ConAgra Foods) is a food company. Shares of CAG traded higher by 0.4% or $0.1/share to $25.17. In the past year, the shares have traded as low as $21.02 and as high as $25.82. On average, 4158790 shares of CAG exchange hands on a given day and today's volume is recorded at 5115617.
Ralcorp Holdings, Inc. (Ralcorp) is engaged in manufacturing, distributing and marketing private-brand food products, Post brand ready-to-eat cereal products and other regional and value-brand food products in the grocery, mass merchandise, drugstore and foodservice channels. Shares of RAH traded higher by 0.16% or $0.14/share to $90.34. In the past year, the shares have traded as low as $53.90 and as high as $90.57. On average, 762168 shares of RAH exchange hands on a given day and today's volume is recorded at 1966557.
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