Few things are more difficult and more frustrating than reinventing your business, but reinvention drives so much of what we see happening in this market.
This morning, Dividend Stock Advisor portfolio holding Pfizer (PFE) is trying to reinvent itself by buying Action Alerts PLUS charity portfolio name Allergan (AGN), the cobbled-together-drug company with a low-tax Irish domicile, in order to become more efficient with its overseas capital. Allergan affords Pfizer a way to do it and -- while it cost Pfizer a pretty penny to do so, giving away a huge number of shares, 11.3 -- Pfizer's confident that the reinvention will be a good one. Allergan allows Pfizer to get a bunch of new drugs and the benchmark drug, Botox, of which Allergan CEO Brent Saunders has raised the price while simultaneously coming up with new uses.
Perhaps Pfizer can split into Old Drug Co and New Drug Co with this merger. In the meantime, you are paid a good dividend to wait. The market doesn't like the deal, in part because Allergan had so much going for it on its own. I know that my charitable trust bought Allergan because we bought into Saunders big-number vision for the future. I still do, but the tie-up with Pfizer seems to convolute the turn. Reinvention in progress?
Then there's Alcoa (AA), which has been producing aluminum since its founding in 1886. In the last few years, under Klaus Kleinfeld, the company's been trying to reinvent the use of the metal, finding terrific ways to integrate it into trucks -- the Ford F 150 made with aluminum was just awarded the Green Truck of the year by the Green Car Journal, because it "light weighed" with Alcoa aluminum. The company's bulked up on aerospace, which is in secular growth mode. And this year Kleinfeld decided to split the upstream, or raw metal side of things, from the proprietary aluminum engineering side.
Today, my Squawk on the Street partner David Faber broke the news that activist Paul Singer's Elliott Management bought a 6.4% stake and seeks a constructive dialogue with management. Elliott believes that the company's worth a great deal more than Kleinfeld told me on Mad Money. I don't think Kleinfeld disagrees, and I do believe he will welcome any dialogue. That said, the stock's been terrible both before and after the breakup, because investors feel that the upstream, aluminum portion, is being crushed by Chinese dumping.
Kleinfeld has asserted that the world will be in deficit position with aluminum because of increased use, but the Chinese do confound people with their aggressive sales of excess aluminum, so there's no real way to bring out more value until we actually see the separation. Candidly, this is an odd one, because the activist is trying to reinvent the reinvention.
Or how about Diebold (DBD), born in 1859 as a safe and vault company, which then reinvented itself as an automated teller machine company in the 1970s? Today it bought a German company, Wincor Nixdorf, for $1.8 billion in cash and stock, making it the world's largest ATM company. I think the deal is a shrewd one, because Europe's coming back and because Diebold needs scale. This one gives it exactly that, and I can't wait to speak to the company's CEO, Andy Mattes, about the acquisition. Part of the reinvention here has been on the software side, where Diebold's offered a host of security solutions with high margins. Being the biggest ATM maker, eclipsing NCR with about one million cash machines, sure will help that software and services component. It's a big deal at a big price, but Diebold has to be bolder if it is going to dominate.
Or how about Deluxe Corp (DLX), which rang the opening bell to celebrate its 100th anniversary. Here's a company that's trying as fast as it can to become much more than a check printer, and I think it is succeeded with ancillary products that banks want to grow their own business. I'm going to sit down with Lee Schram, the CEO, tonight on Mad Money to see how far the company has come and whether it can stay one step ahead of the plastic posse -- or much more than that.
GameStop's (GME) on the decline today, a missed quarter, which has to be regarded as a step back for its transformation out of just a retailer that sells games. It's not easy, when that's in your DNA and you are hostage to a game roll-out schedule. I think that the reaction might be overdone, but there's more later.
Sometimes we are getting turns in business despite reinvention. I am shocked that Tyson's (TSN) purchase of Hillshire Brands last year didn't give it more of a boost when it reported today. I didn't want a pure chicken play, which Tyson was known for. That said, with feed down and prices of chickens up, this was a truly blowout quarter despite the Hillshire acquisition, which was hurt by higher meat costs and lower margins.
Some reinventions are on the fly. We hear from Campbell's Soup (CPB) and Hormel (HRL) tomorrow, both of which are joining General Mills (GIS) in frantic bids to become more natural and organic. To me, CampbeIl's a buy if it is doesn't blow away the numbers, because it is work in progress. Hormel's ahead of it, with the shrewd buy of Applegate Farms.
I love reinvention. But I don't like reinvention that stalls. You can get lucky like Tyson. However, the rest require great skill. Not easy, but it can happen and when it does, you get richly rewarded, as we are seeing in the case of Hormel, and I think will see in many if not most of the others mentioned here.