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So when a company is purchased by another company, what happens to the stock and stock price of that sold company? I have been curious about Krispy Kreme for a while, keeping an eye on it, but if it is purchased, what does that mean for someone who may purchase some shares before the sale? Is it bad or good to do that? People talk about Krispy Kreme as a bad investment because of health concerns, but I don’t think donuts will ever die, it’s something that will not escape people’s taste and hunger, so I think it will see a big rise again if managed right.
Thanks to anyone who responds.
Hey guys, I asked the question as seen above on the page that I linked. I had been thinking about investing in Krispy Kreme because it is low right now and I believe it will get back to some of its greatness in the country with the right approach. I am just starting my efforts in investing, educating myself and researching. I want to know what the overall concepts of investing are when dealing with companies that are going to be sold or have been sold? What is the most common behavior? For instance, in this situation, Wendy's-Arby's wants to purchase Krispy Kreme, what effect will that have on Krispy-Kreme in the most basic sense? I know that Wendy's is not the best at the moment, but what I mean is what does that do to the shares of shareholders of Krispy Kreme? What are the rules on that? I hear talk about splitting stock, but what does that mean?Do people tend to buy a lot when they know a company is being sold to a company that may possibly do well with it or do those shareholders simply get a check for what they had invested and there is no more?
Well the short answer is, it depends on the terms of the transaction.
The terms of the sale could be a cash deal - meaning if you're a shareholder in KKD your shares get converted to cash. They could get converted to WEN's shares.
If a public company is purchased by another public company it will generally be sold at a premium compared to the stock price. The board of directors of the company being acquired has to approve the transaction; if they don't approve it the acquirer can make an appear to the shareholders directly - this is called a "hostile takeover." It is possible a takeover announcement will send the stock lower if another acquisition was already priced in and the price is lower than the market is expecting, but a board of directors isn't going to approve a takeover deal for less than the market price because it's not exactly responsible governance to sell a company for less than the market says it's worth.
Sometimes, such as in the Microsoft/Yahoo mess that happened fairly recently, the board of directors did not want to approve the sale, in that case because they felt the valuation of YHOO (even after something like a 30% premium over the market price) didn't reflect its "true value" and that the market was underpricing it due to overall economic conditions being weak...and that MSFT was poaching an offer an exploiting YHOOs low price. In that case, a hostile takeover is difficult because so much that is being acquired is human capital and if a hostile takeover upsets human capital, you have issues that could destroy value in the acquisition.
One common question that a lot of newbies will have is something like this: "the stock was priced at 20 dollars, another company offered to buy the company for 35 dollars a share, but the stock is only priced at like 32 dollars a share, isn't that easy money since it will sell for 35 dollars a share?" Maybe...this is called "merger arbitrage." There is always a possibility that the deal will fall through so when the price is only 32 dollars it reflects a certain probability that the deal falls through. If it falls through the stock will almost certainly drop back closer to 20 dollars, how much depends on the possibility of some other company coming in with a bid, depending on the situation. It's also possible that rejecting the bid could send the stock HIGHER than 32 dollars too, if the reason for the rejection is someone else offering even more.
Hmmm, thanks for the reply! If anyone has anything else to add, I'd appreciate it. How do I keep the best eye on this possible sale of KKD to WEN? Just basically read the "investor relations" website?
I don't think donuts will ever die either, just like cigarettes will never die, but there is a boat load less people smoking today than 40 years ago. The reason why? Health concerns and their customers keep dying. The core question on the stock price is... Are you looking at this as a short term or long term investment? From a long term perspective, it depends on the core business and the potential buyer. I know people that are addicted to KK donuts, but I personally think their product is overpriced and I just don't get it. I personally would not be buying KK stock or their donuts, and especially if Wendy's purchased it. Have you been in a Wendy's lately? I'd rather eat out of a dumpster.
Cool, thanks. Yea, I was thinking long-term, about 3 years (if that is considered long-term, I think long-term would be about 5-10+, right?). Also, yea, I was worried about Wendy's being the buyer, but I don't know what their plans are if they were to takeover KKD.
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