Stock Markets Exposed
Why is the stock trading cost, lower than the aquization cost?
I am a stockholder for a company called eFunds (EFD), it recently got acquired by Fidelity for a individual cash purchase with each stock valued at $36.50, however the stock is presently trading at $35.33, even after the news came out. My question specifically is why does a cost disparity exist? Wouldn't investors by at the low rate and then when the deal closes make a garunteed quick buck?
Public Comments
- internally trading at $1 lower per share? or generally? I believe the value is what it is trading at... why would anyone pay the $1 more if it can be had for less? If you are really able to buy under trading value and NOT be guilty of insider trading I would do it... unless you expect it to drop immediately (which it sounds like it might)... GL cheers!
- You can certainly try to do this and make $1.17 per share. But analysts don't seem terribly bullish on EFD (two downgrades in the last 10 days). So what may happen is as soon as the acquisition is complete, many of the large shareholders will sell, very quickly dropping the price - possibly in the after-hours market. So you'd have to have good timing to get out at the higher price and the current discount is small compared to the risk you'd be taking.
- The price disparity is due to two factors. 1. the possibility that something might happen to cause the acquisition to not be consumated. 2. There is also the time value of money involved here. The acquisition might take a little while thus cause a current present value discount. As an example say you wanted to buy 10,000 shares at 35.33 for a cost of $353,300 and had to borrow the money to do so at a rate of say 7%. If it took 6 months to get your 36.50 then your carrying cost would be about $12,365. or about $1.24 a share. Just so happens the current discount is about $1.17 a share. I guess it is expected not to take 6 months.
