Is that a whiff of corporate acquisition activity hitting the headlines? And a completed deal in the mining space to boot? Wow!
Shares of Capstone Mining (TSX:CS) and Valeant Pharmaceuticals (TSX:VRX,NYSE:VRX) are up by about 3% today. One because they completed a deal. The other because they didn’t.
The deal that clicked
Capstone announced the $650 million acquisition of BHP Billiton’s (NYSE:BHP) Pinto Valley mine in Arizona. A combination of cash and credit will be used to fund the acquisition that will double the company’s production and firmly places Capstone amongst the world’s leading mid-tier copper producers.
Prior to this deal, Capstone carried no debt on its balance sheet and was therefore in a very good position to go shopping for assets.
Some view the price Capstone paid as too high. Deutsche Bank had the value pegged at just $274 million, while RBC saw $600 million as a break-even price. Capstone sees lower than expected cash costs of $1.80/lb over the next five years and a reserve base that could grow as justification for the price paid.
This deal takes BHP’s total asset sales over the past five months to $5 billion as the global miner trims its non-core operations.
And the one that didn’t
It appears that last week’s rumours of an all-stock merger between $22 billion Valeant and $13 billion Actavis (NYSE:ACT) will remain just that after talks reportedly broke down over the weekend.
From a balance sheet perspective, this deal looks frightening. Although Actavis’ debt/equity ratio of 167% is relatively gorgeous compared to Valeant’s 297%, both are high. Real high.
Valeant’s strategy to seemingly buy up everything in sight comes with a high-degree of risk. At some point, they are bound to bite off more than they can chew. These Valeant deals may look good in an analyst’s spreadsheet today, but that debt load is going to come back to bite if interest rates don’t co-operate. Careful with this one.
Canadian investors deserve to own great businesses and the U.S. market is home to some of the best in the world. We have created a special FREE report that identifies 3 U.S. businesses that are worthy of your hard earned investment dollars. Simply click here to receive “3 U.S. Stocks Every Canadian Should Own” – FREE!
Fool contributor Iain Butler does not own any of the companies mentioned in this report at this time. The Motley Fool does not own shares in the companies mentioned.
Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.