Stock for a company being bought?

Question

A company is being bought for $14.30 per sahre and taken private. Right now the stock is at $13.70. Would this be a good buy?

Answer 1

Maybe, maybe not.

If it was certain that purchase would take place, and if the $14.30 figure represents cash per share, it would probably be a good buy. However, if both of those things were true, it is unlikely the stock could be bought for $13.70.

Just because the companies announce their intention to go private for does not mean it will happen. Before it can happen the shareholders must approve. While shareholders usually approve a buy out, they have been known to reject them if they do not think the offer is high enough.

You also need to look at the terms of the proposed sale. If the $14.30 figure is not paid as a lump sum in cash, the deal may not be as attractive.

I believe the market is efficient enough that you could not make a sure $0.60 profit on a $13.70 investment in a very short time frame. That makes me believe there is some realistic risk of losing money if you bought the stock.