Can you tell a company is ripe for takeover ?

Discussion in 'After Hours Lounge (Off Topic)' started by Kirk Gunn, Feb 4, 2005.

  1. Kirk Gunn

    Kirk Gunn Screenwriter

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    Question for you Business Admin graduates...

    How can you tell if a company is a potential takover target ? Are there certain signs ? Our stock price is at an all-time high, yet we are continuing to slash support staff even though our user base grows through smaller companies we purchase. We also continue to meet or beat our financial analysts predications, even through the recent economy slowdown/recession post 9/11. Last year we grew from a Fortune 400 to Fortune 200.

    And... if a high stock price and low operating costs indicate a good takeover potential, what is the impact on the stock price prior to takeover ? I've got 25% of my 401k in company stock. Should I dump now at the current high or hold on ?

    Thanks
     
  2. Anthony_J

    Anthony_J Stunt Coordinator

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    Depends on the industry. If you have a couple of behemoths with a lot of free cash looking to gain a quick market share or really hungry to gain entry to a new market class or region, there will be takeovers (a la Cingular and AT&T). On the other hand, if the industry hasn't fully formed as of yet, takeovers may not be on the immediate horizon - but they may be in the future once the players start shaking out.

    Remember though, that takeover targets aren't simply dependent on the sales or income generated (which are the primary drivers of stock price in today's market), there are also balance sheet issues to consider, e.g., debt levels, etc.

    I think the general rule of thumb is that the firm making the acquisition sees a lower stock price in the short term, while the firm being taken over sees a stock price increase.

    Regardless of stock performance, always diversify your portfolio. 25% in one company may not be terrible, but it really depends on how the rest of your investment strategy looks. Don't worry as much about the short term prospects of the stocks in your fund. Unless you own investments in risky propositions, stocks don't generally disappear. If your company does get taken over, the shares you own in your company will be translated into shares of the new company and will probably have a better long-term growth potential.
     
  3. Todd Henry

    Todd Henry Second Unit

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    When a company is taken over, all of its shares are purchased by the acquiring company. In order to get approval for such a transaction, the acquiring company typically offers a premium on the stock of the acquired company. Therefore, if you company's stock is very high, it reduces the likelihood of a takeover. In order for another company to buy ours they would pay even more than the current price, causing your shares to appreciate.

    Todd
     
  4. MikeSerrano

    MikeSerrano Second Unit

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    Usually I just squeeze it and see if it's soft.

    Sorry. I'll leave now.

    -Mike
     
  5. Eric_L

    Eric_L Screenwriter

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    there is a possibility that these are all defensive measures by management to avoid a takeover.

    25% in one stock is poor judgement. Seek the advice of a competent financial advisor yesterday, or at least today. Tomorrow is too late.
     
  6. Kirk Gunn

    Kirk Gunn Screenwriter

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    Normally I agree, but I'm being greedy.... Stock is up ~25% per year with decent dividends (.335 per qtr). This isn't my only 401k, so actually 12% of my overall retirement portfolio. The rest is much more balanced (per professional advice) [​IMG] Sometimes I just gotta buck the pros !

    I'll probably dump some now, since it's at an all-time high.

    Thanks for the comments !
     
  7. DaveF

    DaveF Moderator
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    Are high-level executives from other companies being given tours for no apparent reason? That's an indicator.

    Are you a division of a parent company, and don't really fit their key interests? Are you a cash generator for a larger company that isn't doing very well? Those are traits of a company that is plum for selling.
     

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