M&A Moves Are Electric in This Market

 | Jan 15, 2013 | 7:40 AM EST
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When will companies take their cue from these bold acquirers? On Monday we again saw how positively this market reacts to these bold moves: Shares of VF Corp. (VFC), an apparel maker, reaped a huge gain just on the strength of reports that VF might buy Billabong. The latter is an Australia-based surfing-attire company that's been down on its luck, but has great brands for the fast-growing surfer set. VF Corp. stock started higher as word leaked about the possibility of the bid, and then gained strength throughout the day, ultimately closing up almost 5 points. Remember, VF would be bidding -- not getting a bid!

Billabong is a company that has tremendous credibility among die-hard board fanatics, even as its stock has lost 34% in the last year after sliding 78% the year before, all of which transpired after the company missed a multiple quarters. This darned thing has been crushed, and it now trades at 14% of what it was worth just a couple of years ago -- yet the company is still worth about $500 million.

Yet, when VF Corp. expressed an interest in this loser, its shares went up. It's a testament, again, to my thesis that this market has a view of things that says, "Don't just stand there, do something." Any sign of a company willing to grow through acquisition is electric in this market.

Now, there are other bidders, so it is not a done deal.

But if VF doesn't get Billabong, who is to say it might not go after Quiksilver (ZQK), another company in the segment, or perhaps Zumiez (ZUMZ), which also sells apparel to this sector? Quicksilver might be too much to swallow, as it has $1 billion in market capitalization. Zumiez sports a $630 million market cap, but it has also been real down on its luck, much like Billabong. Both are at least historically cheap -- and I now feel, after Monday's Billabong foray, that they have a VFC backstop underneath them. Zumiez has been cut in half since last July on a missed quarter, not unlike Billabong, and that sure hasn't scared off VF.

This Billabong tussle is worth watching for two reasons. One is that VF's move has to be noticed by all of those bankers who are looking to work a deal for Deckers Outdoor (DECK), which is thought to be another VF target, and has recently expanded to surfer apparel. Second is that even a whiff of a deal sends the acquirer up in this market, and a great deal of acquirers have enjoyed success in the last year. So, if you have a decent balance sheet and a good stock price, how can you not put a call into a banker and ask them to tee up some company that would fit into your portfolio of brands?

This Billabong news comes on top of the possible private-equity bidding for Dell (DELL) and the takeover of Harry Winston, the jeweler that's being bought by Swatch, and all in one 24-hour period. I reiterate, then, that we could see a truly bountiful year for mergers and acquisitions.

It will stay that way as long as companies like VF go up huge, not only when they make acquisitions, but when they even say they are interested in bidding. This is a truly astonishing development, and one that I think could portend very good things in 2013 for both the acquirers, and of course, for the targets.

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