Van Meerten's picks

For some time I've been back testing my "Sharks and Minnows " theory. In many instances, companies that are acquired (the Minnows) usually get acquired at a price that is a premium. When the merger is announced, the acquiring companies (the Shark) usually takes a hit in the market. I know the exchanges are supposed to be policing insider trading, but there still seem to be leaks.

Look at almost any Mergers and Acquisitions in the past few years and you will see unusual price and volume movement in the two weeks prior to the M&A announcement.

What do we see today? Fact #1 - Many banks and financial services companies are selling at 50% of their last year's high. Fact #2 - The Euro is now at least at 50% higher than the dollar. Fact #3 - Both Warren Buffet and many of the Sovereign funds are visiting Europe, awash with cash, and both like bargains.

Does that make for the "Perfect Storm"? US banks for sale at 50 cents on the dollar. Euros make the dollar worth only 60 cents. Warren Buffet and the Sovereign funds are awash in cash and looking for bargainsin Europe. Why not go to Europe and fund the take over of US banks on sale?

Who would be a likely target? Forget Citigroup, Bank of America and Wachovia. It's not that they are too large. It's that the people who could acquire them already have a banking presence in the US and the 10% rule comes into play if you add any of those bank deposits to the big three. Where does that leave us?

For that I go back to BarChart and get a list of the Money Center banks and look at the prices and volumes. When I look at the historical volumes, most banks are trading at 30- 50 % but I notice that Key Group (KEY) is trading at 108% of its historical volume. Key Bank's price has traded lower almost every week for the last 6 months, but something strange happened on June 13th. The price stopped declining and stays at a steady support level of $12 per share.

Lastly, check the news. There was insider buying activity below $12. Seems insiders don't want the stock any lower.

If a non-US bank wanted in the US market, Warren Buffet or the Sovereign funds could fund the acquisition for a piece of the action. My money is on Key Bank to be acquired in a "hostile" takeover at a great premium.

The perfect storm is just over the horizon!

Comments: View Comments |  Thursday June 26, 2008