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What's the Deal on the Friday Five?

Morningstar markets editor Jeremy Glaser dishes on the deals of the week, including hotel sales, health-care M&A, and apparel action.

Jason Stipp: I'm Jason Stipp for Morningstar and welcome to the Friday Five. This week we have the deal of the year for you: five notable headlines from the past week. This information we're sure you're going to find accretive to your investing knowledge over time.

Here with me to talk about the terms of the deal is Morningstar markets editor, Jeremy Glaser. Jeremy, thanks for joining me.

Jeremy Glaser: You're very welcome, Jason.

Stipp: So, as you can tell, we've got Deals Week this week on the Friday Five. You've got five interesting deals to talk about. Some of them seem pretty good. Some of them seem kind of forced, but you'll give us the details. So what do you have? What's the lineup?

Glaser: Yeah. Absolutely. We saw a 50%-off sale in hotels. MGM is being forced to deal. Generic pharma M&A is starting to pick up a little bit. Inflation data is showing there could be deals across the entire economy. Finally, we'll take a look at Tommy Hilfiger, which apparently is still worth $3 billion.


Stipp: So let's start off with hotels and begin with Extended Stay.

Glaser: Extended Stay got bought out at the very top of the market in 2007 for $8 billion. This deal looked crazy at the time, and it went into default and bankruptcy pretty quickly after that deal was completed. Now it's on the market for $4 billion as it emerges from bankruptcy court.

It looks like those assets were 50% overvalued. Hopefully not all of commercial real estate has to fall that much to get back to an actual parity level, but it does show that there could be a lot more pain in that sector.

Stipp: It certainly shows the danger of buying at such a high peak.

Glaser: Absolutely.

Stipp: Also on the hotel front, some interesting news on MGM, the hotel casino front. What's the story there in their Macao deal?

Glaser: It looks like the New Jersey Gaming Authorities were not so happy with MGM's association with Pansy Ho, who is the daughter of Stanley Ho, who has alleged ties to organized crime in Macao.

The Ho family used to control all the casinos in Macao, and now they just control a lot of them. New Jersey said you have to either get rid of your relationship with Pansy Ho, which would mean essentially having to sell their stake in their Macao property, or leave New Jersey.

They've decided to put their sale up in the Borgata, which is a 50/50 venture between MGM and Boyd Gaming instead of having to leave China, which they see as a much bigger growth market. They are being forced to sell this property.

I think, in general, they actually should be happy to get the cash and the capital that they are going to get from it. It's been performing really well over the last couple years. It redefined the Atlantic City gaming landscape.

I don't think they'd necessarily want to leave it, but I don't think they are going to be so heart-broken. They'd rather keep their ties in Macao, and it seems that the other gaming regulations, like in Nevada, don't seem to care as much, and they'll be able to continue doing business as usual.

Stipp: Sounds like an interesting story there. Maybe they could make a good movie some time. Moving on to the health-care front. Teva made a deal this week that maybe has some implications for what's happening in health care. Tell us a little bit about that.

Glaser: Teva spent $5 billion to buy Ratiopharm, which is a German generic drug maker. It shows the continued interest in generic drugs. Insurance companies are pushing consumers into these less expensive drugs as things come off patent. There's always a race to get the first generic out to market.

We even see talk of more advanced generic drugs that are coming down the pipeline. Even this week, we saw that the health-care bill that is slowly winding its way through the House of Representatives got rid of any provisions that would restrict generic drugs from, say, taking payments from branded to not produce it or to entering into what were seemingly non-competitive agreements with the branded pharma companies.

That got stripped from the legislation for some technical reasons. It could be a boon, at least in the short-term, for some of these companies. Definitely generics space is a place that we could see some more M&A activity, just there and in health-care in general.

Stipp: Generics will keep a little more dollars in consumer's pockets. Speaking of consumers, they maybe are getting some good deals according to some economic data this week. What did you see on CPI?

Glaser: Inflation is incredibly benign. Excluding those volatile energy and food prices, they're up 0.1% from last month after being down 0.1% in January. Price level is going absolutely nowhere. A lot of this is that the economy is nowhere near full capacity, which keeps prices in check.

That just means that Fed, A) has enough latitude to keep rates low for a really long time and, B) it means that consumers are still getting pretty good deals, that we saw prices come down pretty substantially.

We had some deflation there as consumer prices came tumbling down due to deals and just trying to get people to spend again. It seems that as people might have a little bit more money in their pocket, they're going to find pretty good deals out there.

Stipp: So speaking of deals, Phillips-Van Heusen seems to be having a good deal with Tommy, or at least they think it is. This is a little bit of an interesting deal, tell us about what you see there.

Glaser: It might be somewhat similar to the Abercrombie situation where we're surprised to see that there is a ton of interest for Abercrombie products in Europe and in Asia. And it seems like Tommy Hilfiger also has a pretty big international presence, which is what Phillips-Van Heusen was really trying to go after with this deal.

We actually think they paid a pretty fair price and that it should be accretive to the folks at Heusen, shareholders for a long time, and it shows U.S. investors that even if there's a brand that seems like it's a little bit beaten down domestically, it could have a lot of traction outside the United States and could still be an interesting opportunity for some other company.

Stipp: A well-known U.S. designer has more opportunity in China, then the best days are over in the U.S.

Glaser: I think so.

Stipp: Thanks so much for joining me, Jeremy.

Glaser: You're welcome, Jason.

Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.

Jason Stipp does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.