Prestige Brands Shares Surged: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of consumer brands specialist Prestige Brands (NYS: PBH) were getting the red carpet treatment from investors today as they rose as much as 25% in intraday trading after the company bought 17 consumer brands from GlaxoSmithKline (NYS: GSK) .

So what: When there's an acquisition taking place involving publicly traded companies, generally the target's price will spike and, if it does anything, the acquirer's stock may fall. That was hardly the case today as Prestige's stock shot up after it announced it is spending $660 million for 17 over-the-counter health-care brands from GlaxoSmithKline. Among the brands purchased were Goody's, Ecotrin, Beano, Tagamet, and Sominex.

Now what: In the company's press release, Prestige CFO Ron Lombardi said the acquisition will be accretive to fiscal 2013 (which begins in April 2012) and that it will also improve "overall gross margin and EBITDA profiles" as well as "increase ... our free cash flow." From a shareholder's perspective, that hardly sounds like a darn good deal.

Of course with shares up substantially today, an increase in the overall value of the company due to the acquisition may have been quickly factored in. Also, it's notable that this is the largest asset purchase Prestige has ever undertaken, so investors will want to keep an eye out for any hiccups in the process.

Want to keep up to date on Prestige Brands? Add it to your watchlist.

At the time this article was published Motley Fool newsletter services have recommended buying shares of GlaxoSmithKline. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye. 

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