Anyone have thoughts on the potential YAHOO! takeover?
In a takeover situation, it generally seems that the target company's shares tend to go up in price.
What happens down the road, when its shares are absorbed by the purchasing company? Does the actual value of the (formerly owned) stocks tend to go in any particular direction? (I'm asking because of friend of mine recently purchased some YAHOO! shares, and I'm considering telling her to take the [significant] short term profit and run...)
(And I'm new here, so please be gentle...or NOT!) ;>)
Thanx all!
FACE
Answers
321 points
charlo answered one year ago …
The "vanilla" merger arb play is to short the purchaser and long the target.
Full details haven't been disclosed but it really is a matter of preference in waiting for the price to get higher. The price right now as a I look at it real time is around 49.5% premium. Reuters just reported that there might be other suitors for YHOO and that the premium price just might get raised.
The way I look at it is that in all honesty it's about the assurance of having a 50% gain or risking to get an additional 5-10% max. Given YHOO's current valuation, I don't much of an upside premium other suitors will follow, if any. Now you can obviously hedge your current position writing calls or buying some puts, but given it's the day of the buyout announcement, the option chains are going pretty wild (haven't really had the time to analyze it much yet). Your friend could sell a significant portion of his shares and cash out while leaving some for him to play out the trend at his choosing.
631 points
Creezy answered one year ago …
I agree with Charlo - take the profits here. There's going to be significant integration risks if this merger does go through (the two companies have wildly different cultures/structures). Not to mention what will happen to the stock if the merger doesn't go through.
Take the money and run! :)
2183 points
ChaosNantuko answered one year ago …
Personally, i'd set a trailing stop of 5%, and let the profits continue. I believe it will go up from here, due to the standard speculation about someone else trying to outbid for it, and I doubt the deal will experience any problems for at least another week, if not much longer. That being said, profits should be protected. A trailing stop would acomplish that. For information on trailing stops, see this article:
http://www.investopedia.com/articles/trading/03/080603.asp
109 points
Lonc1943 answered one year ago …
Experience has taught me that combining two companies with a loosing business plan makes a bigger looser. Microsoft should stick to their core business.
Read more from Lonc1943
