Is it a Bad Sign When a Company Merges with Its Competitor?

Nick posted this comment on the Phil Town blog a few days ago. It's a good question for those of you looking to buy a company that's about to merge with a competitor.

Hey Phil Town,

I know you are really busy but I am unsure of what to do. I have been doing research on a company called Watson Wyatt Worldwide (WW). It is a service-based company that specializes in human capital consulting.

The company seems like a really great business but I just came across an article that says that Watson Wyatt is about to merge with its main competitor, Towers Perrin.

What should I do? Towers Perrin is not a publicly traded company, so I have no way of knowing whether or not it is a good company.

I want to invest in Watson Wyatt, but now I am afraid to because I feel like there's no way to know whether Watson Wyatt will be as fiscally sound in the future? Any advise would be greatly appreciated.

Thanks,
Nick

My answer:

You're running on rumor!  It's a start but now do your homework.  4Ms. 

If it is a wonderful biz it's going to buy competitors.  Especially now.  Not a bad sign.  But make sure you know who is buying who. 

Do a careful valuation.  Send me your workup on it.

Now go play!

Phil Town