Slower economic growth is causing companies to get more creative in finding ways to grow value for shareholders. Some are looking to acquire market share or spin off divisions that have less appealing growth potential. Others are looking to overseas expansion and exposure to faster growing emerging markets. Fewer are looking to merge with archrivals, but it could represent a unique and compelling way to cut costs and combine resources committed to pursuing the same mission. Below are three pairs of rivals that operate in very similar businesses but are struggling to grow on their own. To revive their fortunes, they might want to swallow their pride and merge their operations.
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Professional sports is a multi-billion dollar business. Several teams, including the Dallas Cowboys and the Manchester United soccer team in Europe, are worth well over US$1 billion each. As a result, players are able to garner multi-million dollar annual contracts for their services. Below are five contracts that proved especially costly to the underlying team when these players were injured or had personal problems.
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AmerisourceBergen (NYSE:ABC) and two large rivals effectively control the market for distributing drugs from drug manufacturers to drug retailers, hospitals and similar locations where consumers go to fill their prescriptions. The industry has grown steadily for more than a decade now, but is showing little sign of slowing down.
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Scotts Miracle-Gro (NYSE:SMG) considers itself one of the largest lawn and garden care companies on the planet. Unfortunately, that means much of its demand depends on the weather, which is anything but predictable. Mother Nature appears to have continued her uneven streak so far this year, and caused Scotts to pull its financial guidance until next quarter.

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During a recent presentation to investors, fashion retailer Nordstrom (NYSE:JWN) pointed out that its stock has outperformed the rival retail industry and stock market overall. The level of outperformance has been significant, with $100 invested in early 2002 growing to above $500 by early May of this year. The stock has pulled back rather significantly since, and could present a buying opportunity.

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In a recent company presentation, electronic payment processor Global Payments (NYSE:GPN) pointed out that the market for card-based payments is growing 13% annually. Consumers across the globe continue to shift from paying cash to using credit cards and related electronic payments, such as through PayPal online. There are a number of ways to invest in the growth, with Global Payments a compelling option, provided a recent data breach doesn’t turn out to be too serious. If it doesn’t, the downswing in the shares represents a buying opportunity.
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Convenience store operator Casey’s General Stores (Nasdaq:CASY) prides itself on a rural base of stores in approximately 11 Midwestern states. These locations help keep the stores out of the way of other national retailers and therefore stoke demand for its snacks, smaller grocery items and high-margin fountain foods and drinks. Combined with solid expansion potential, the stock could be worth paying up for.
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ManTech (Nasdaq:MANT) provides the government and its military organizations with security software, information technology support and related services. Over the past decade, it was one of the fastest-growing firms in the industry. Challenging industry conditions are making it look much more pedestrian and recent profit declines are looking severe compared to some larger rivals.
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Becton Dickinson (NYSE:BDX) sells basic healthcare products such as needles, surgical tools and syringes. It also sells products that are used in drug discovery and related lab functions. Sales aren’t growing rapidly, but management has been able to control costs to boost earnings in the double digits annually. Going forward, investors should expect more than the same, and the stock looks very reasonably valued currently.
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Zep (NYSE:ZEP) boasts more than 200,000 customers on a global basis. Commercial enterprises, industrial producers, institutions and consumers all utilize its cleaning products. With less than $1 billion in sales in a market it sees as a $75 billion opportunity, Zep should have plenty of room to grow and acquire market share.
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To much fanfare, women’s accessories and handbag purveyor Vera Bradley (Nasdaq:VRA) first went public at the end of 2010. The stock opened at around $27 per share and quickly rose to $50 per share, but has recently fallen close to the IPO price of $20 per share. Fashion is fickle, as are underlying customers, but at the current price investors are arguably overly bearish on Vera Bradley’s future prospects.

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The stock of household cleaning and product firm Clorox (NYSE:CLX) was badly lagging the market earlier this year, but has remained somewhat steady while the stock market has entered another period of volatility. This speaks to the stability of its product mix, which counts as basic necessities to most consumers. The valuation isn’t compelling, but the dividend yield is, as is the downside protection that the shares offer.
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Back in December 2011, online travel operator Expedia (Nasdaq:EXPE) spun out TripAdvisor (Nasdaq:TRIP) as its own public company. Shareholders that hung on to TripAdvisor are sitting pretty as the stock is up about 60% since the spinoff. The company is also growing rapidly, but similar growth levels could be hard to sustain going forward. In addition, the valuation currently reflects much of this future growth potential.
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