Home builder sentiment hits 7-month high, Sensata (ST) to buy Schrader and Dollar General (DG) makes big bid for Family Dollar (FDO)

Bourbon & Bayonets / Monday, August 18th, 2014

Markets were heading higher on Monday morning after the National Association of Home Builders announced home builder sentiment reading for August showed a seven-month high. The NAHB said that this month’s reading came in at 55, up from last month’s reading of 53. This surpassed expectations of the index remaining flat at 53.Expectations for future sales grew 2 points to 65 along with current sales conditions gaining 2 points to 58. NAHB Chairman, Kevin Kelly, said, “As the employment picture brightens, builders are seeing a noticeable increase in the number of serious buyers entering the market. However, builders still face a number of challenges, including tight credit conditions for borrowers and shortages of finished lots and labor.”

Shares of Sensata Technologies Holding (ST) were trading up over 4% after the company announced that it was going to be buying Schrader International in a deal totaling $1 billion. Sensata is a company that produces sensors and electrical controls. The move is a step to help the company take a stake in a growing market for tire pressure monitoring sensors (TPMS). Schrader International is the leader in this area. This device is what is located in vehicles that alert the drivers that tire pressure is low. TPMS’s are now a standard device in all vehicles. Schrader employs 2,500 people and sells their devices in the United States, United Kingdom, Germany, China, Japan and South Korea. Sensata Chief Executive Officer, Martha Sullivan, said, “The acquisition of Schrader extends Sensata’s leadership position in pressure sensing and provides further access to a rapidly growing $2 billion low-pressure sensor market.”

Shares of Dollar General Corporation (DG) were skyrocketing up over 10% after the company announced a bid for Family Dollar (FDO) that totaled $8.95 billion. The offer equals out to $78.50 per share and is a 3.2% premium over Friday’s closing price. This bid blew past the previous bid that Dollar Tree Inc. made last month of $8.5 billion. Carl Icahn had recently urged Family Dollar to allow itself to be bought by Dollar General, the No. 1 U.S. retailer. DG said that if this deal were to go through it would expect double-digit percentage terms within the first year after the deal closed. Joseph Feldman, an analyst with Telsey Advisory Group, said, “I think Dollar Tree would want to come back with something. Both Dollar General and Dollar Tree have some capacity to go a little bit higher with the offer price.”

That’s all for today,

Warren Gates, Normandy Research

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