Mario Gabelli: Flurry Of M&A Activity And Deal With China

Mario Gabelli, Gamco Investors chairman & CEO, discusses the bevy of mergers and acquisitions announced today.

Mario Gabelli Deal With China

Mario Gabelli’s Take On Today’s Flurry Of M&A Activity

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Q4 hedge fund letters, conference, scoops etc

Transcript

Full collection of major deals announced today in health care space Danaher will buy GE's biopharma business Life Sciences for 21.4 billion dollars and Roche Holdings of Sparke therapeutics for 4.3 billion dollars. Private equity firm, Platinum Equity, announced today it will buy label maker multi-color Corp. for 2.5 billion and mining company Barrick Gold has made an unsolicited offer to acquire Newmont and an all share transaction this bevy of deals catching the eye of at least one major investor named co-investors chairman and CEO and co-author of merger masters tales of arbitrage Mario Gabelli joins us now via phone for a CNBC exclusive interview. To discuss all of this deal making activity. Welcome to the program Mario. Appreciate you being here with us today.

I would love to see you in person Courtney but I couldn't do it today.

Hey we understand we appreciate you being with us any way you can do it. Let's start with the Danaher deal I understand at least as of the end of last year you own some of those Danaher shares so you've got to be happy today that stock popping on that news. Yes.

Sometimes the buyer of the business stock goes down sometimes it goes up in this particular deal then it was up about ten dollars showing that they are focused on getting that recurring revenue. What we do as a firm and I started this place about started doing research 50 years ago is the sell side analyst. We do bottoms up research in the late 70s that coined the phrase and trademarked the private market value a catalyst.

What will narrow the gap between the public prices in aerospace and arbitrage is an outgrowth of that it's a very interesting way to earn an absolute return and the arbitrageurs in our book 19 or 18 of them have done extremely well over an extended period of time focusing on absolute return. Today was another example of a lot of deals surfacing. You touched on one or two.

But you know just the notion of why should companies be allowed to do transactions and how does the free market work within that framework. How do management style allocate capital. Right or wrong. We've seen some horrendous deals. Just think about how Hewlett-Packard bought a company in the UK a few years ago. How Time Warner did AOL at that time away all the Time Warner. But on the other side there had been a significant number of well done structural transactions taking advantage of synergistic benefits at the corporate level. And then you've got the P guys and you've got Warren Buffet doing elephant hunting so and then you get the price of the stocks of the target's aside from the Neumont burek deal today with a pay a big premium over less. So those are the elements that come together.

And Mario given those elements Mike Santoli by the way doesn't it seem as if we are in economic expansion. How far along we are the credit markets remain very accommodating. Obviously the stock prices are high enough CEOs should feel confident shouldn't we be seeing more Mondays like this with at least as many deals and what do you make of the fact that dealer activity as a percentage of let's say overall market cap has not really been that high given where we are on this bull market.

Where you have enough transactions. Mike last year that were probably the second or third best I don't have the numbers in front of me independent of that you go through cycles and transactions obviously the CEOs of companies and the boards get a feel comfortable when there's a tailwind. Okay. When there's a tailwind whether it's US CA or whether it's the EU transactions or a deal with China but independent of that companies want to grow they look at the costs the capital we look at the tax structures of deals they look at any benefits that they get. And you know what multiple are they paying. And then the guys look at what multiple will they be able to sell at five to seven years from now. So what Buffett looking at what are the corporate entities looking at and in the case of the three deals that you saw today whether it was sparked therapeutics or whether it was Klemens or serious medical. You know you could actually Klemet Clemente. You would say to yourself hey you know what values does the buyer have what they need to accelerate growth was this R and D off the balance sheet. So those are the things Mike.

Murphy earlier today Warren Buffett seems to suggest that while he still likes equities very long term in the short term it's quite hard to be buying when we consider some of those macro factors like the Fed pivot like a China trade deal seemingly close. Do you feel like all of that good news is already priced into the markets at the moment.

Well that's a different question. You've got three different questions. One is what is the market you know is the China deal baked in. The market likes to discount six months in advance or some period in advance. And as you're looking at a likely deal with China months ago you started saying look Trump position well it's like a CEO positioning the economy for a year from now so that he has a strong economy the spring of 20 20 when the election is running. And so the market to a degree has and you've had multiples of even a minus cat facts however you want to value businesses have crept back up particularly a small cap stocks but there's still a lot of very interesting nuggets out there. For example Steve is. Now that they got the license in Everett Massachusetts will something happen to that company.

Will the deal with the Chinese allow Bacau to get the license renewals or greater expectations so financial engineering's will a company like command spin off their industrial products business as some have suggested. And every day you have new opportunities.

My earlier this morning Warren Buffett hinted that he very nearly made a very large acquisition in Q4. You follow Mr. Buffett very closely. Any idea what you think that might have been or is there any recommendation.

At all I the one sentence however in his chairman's letter which was kind of in that a lot of sentences but one that was intriguing is the sale for the first time more openly aside from me being the one of the best tax people around along with John Malone. But he's more quiet about it. He's talking about non U.S. Is he. What is he doing about saying hey maybe the bargains are outside the United States. Look he's done very well would be ideal the Chinese electric vehicle manufacturer. He's done quite well with some German opportunities with his car and in Israel. So is he saying I can get a better multiple outside the United States. Read that last sentence that kind of perked my interest.




About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver