When the Bidder Tells You the Offer Is Too Low

This is a setup with a strictly capped downside over the next 1.5 months while investors await a better offer.

The company has received a hostile on-market takeover offer. The buyer will post a standing buy order on the open market shortly and will keep it open for a month. The offer is unconditional. I expect it to be raised. The market seems to agree, since the stock already trades above the offer price. A very interesting detail is that the buyer itself has continued purchasing shares in the open market at today’s levels even after announcing the bid. That signals a clear willingness to pay more than the stated offer. A well-known activist has also taken a position at current levels.

The buyer has been interested in this company for several years and has already built a sizable 20% stake. It has a history of accumulating shares at current levels, even when the company’s assets were far less developed.

Management has straightaway recommended investors not to sell, as they might miss out on a higher bid from the same or even a competing buyer.

If a higher bid does not materialize, investors can still sell into the on-market offer (this would result in minimal downside) or exit in the open market at an even better price.

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