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WHEN YOUR STOCK IS TAKEN OVER
The M&As (Merger and Acquisition) are always most active at market tops. Note the activity during the past two years.
It used to be in the millions of dollars, but nowadays It is in billions of dollars. It is hardly a mention if it is less than a hundred million.
Current management usually doesn't like the Idea of being bought out or merged by another company.
The top execs will be out on the street looking for a six or seven figure job. And don't forget all the perks that go with being a CEO. Almost always the buyout offer is at a price higher than where it is currently trading. Not too much higher, but at least 10 to 20%. Sometimes as we have recently seen in the takeover attempt of Yahoo by Microsoft was amazingly higher.
What do you do in a case like that? First bit of advice. Don't sit on your hands. Get to a phone as quickly as possible and order (I did not say ask) your broker to sell all your shares at that higher price. Don't listen to a long sob story about how much better the new company will be. Blah, blah, blah.
With the current credit crisis that has not ended there is a good chance the deal will not go
through. If it is especially big deal it will be tough to finance.
Maybe the deal will materialize. Now you are sitting on a pile of cash and can buy back in - if you
want to. The scenario may have been rearranged and not be as good as before.
If there is infighting that went on before the deal was put together it could have impacted on boththe price of the shares and the operation of the newcompany.
In some cases you might not want to sell, but can sell options against your holdings thereby putting cash in your pocket and protecting a long term position. Sell 4 month or 6 month out puts at the money. Act quickly or lose money. Any broker should know how to do this. If he doesn't get another.
It is called "shorting against the box". You can't lose. The stockholder might be out a few bucks if the new stock does go up after the merger is finished, but he can buy back in any time.
Don't forget the old saying, "I'd rather be out wishing I was in then in wishing I was out".
Al Thomas' best selling book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter and receive his market letter at no charge on www.mutualfundmagic.com to discover why he's the man Wall Street does not want you to know.
Copyright 2008 All rights reserved.
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