Re: Good Deal or Bad Deal?
I've noticed the Adidas-Reebok deal and you are correct, the discount is pretty much based on time value of money. The deal has a long time frame.
Adidas-Salomon AG (ADS.XE), Reebok International Ltd. (RBK)
Current discount: $2.35 or 3.98%
Acquirer: Adidas
Target: RBK
Offer per share: $59 cash
Value of outstanding common equity: $3,522,300,000
Target share price: $56.65
Expected closing: First half of 2006 3/31/2006
Annualized gain: 7.46%
That said, I'm keeping an eye on it. Right now, it's not such a good deal, but later on, if Reebok fails to rise in price, then the annualized premium might just make it a good deal, especially as certain regulatory hurdles are cleared.
We like to think the markets are efficient, but in merger situations it seems that they often aren't. Since the target stock has a price ceiling, analysts often seem to stop covering it and it goes off the radar. Irrationality can also take over, take a look at JNJ-GDT. GDT had their problems and there were rumors of a reduction in price, but now things seem stable and we're just waiting for October FTC approval.
Risks, yes. But how many people are investing in high flyers with incredible risk, hoping they'll hit that 10 bagger? It's all relative.
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