What happens when a stock is acquired by a private equity firm?

Discussion in 'Ask any question!' started by TheSmelloscope, Nov 20, 2019.

  1. TheSmelloscope

    Joined:
    Nov 15, 2019
    Messages:
    51
    Likes Received:
    14
    I've been holding IPHS for about 8 years. It's a boring small-cap, specialty-chemical company with offerings in food, health, medicine, and agriculture. They've underperformed compared to the S&P, but I've continued to hold for various reasons.

    Recently I discovered IPHS is likely to be acquired by "One Rock" (a private equity firm) during Q1 2020.

    So my question is-- what does that mean for the future of IPHS? Will the stock be de-listed? Should I be concerned? Or is it more of a "wait and see how it all pans out" type of situation?

    Not sure what to expect or how to plan.

    I've tried the good ol' Google search, but I'm not finding the answers I'm looking for. Hoping you might be able to school me.
     
  2. Three Eyes

    Three Eyes 2018 Stockaholics Contest Winner

    Joined:
    Dec 14, 2017
    Messages:
    485
    Likes Received:
    633
    Literally, anything could happen, both good or bad for the company, good or bad for the shareholder, and good or bad for the PE investor. Although, you can usually count on the PE investor to engineer all the possible outcomes in its own favor. A fairly well-known and documented example of this regards Sears: See "How vulture capitalists ate Sears" and "New York private equity group leads $800M refi for Sears" for summaries.

    All that said, in the case of your One Rock acquisition of IPHS, I did a Google search on '"one Rock" IPHS' and the very first result was this Oct. 21 article on Streetinsider.com, which includes (almost) all you need to know:
    • "The definitive agreement includes a 30-day “go-shop” period, commencing immediately, during which Innophos, with the assistance of its legal and financial advisors, will solicit alternative acquisition proposals and potentially enter into negotiations with respect to alternative proposals. There can be no assurance that this process will result in a superior proposal or that any other transaction will be approved or completed."
    • "Under the terms of the definitive agreement, the Company has suspended the payment of all dividends."
    • "The closing of the transaction is expected to occur in the first quarter of 2020, subject to stockholder and regulatory approvals and the satisfaction of customary closing conditions. Upon the completion of the transaction, Innophos will become a privately held company and shares of Innophos’ common stock will no longer be listed on any public market."
     
    TheSmelloscope likes this.
  3. TheSmelloscope

    Joined:
    Nov 15, 2019
    Messages:
    51
    Likes Received:
    14
    Thank you @Three Eyes . Well that's embarrassing, I can't believe I somehow missed the Street Insider article. I was swimming through several other articles last night and feeling frustrated and intimidated by the legalese. I really appreciate you taking the time to help me understand and bolding the key elements.

    I will do more reading and research, but currently it seems like the "safe" option would be for me to sell all my shares. If One Rock is hoping to payout $32 per share before going private, and they aren't going to be paying dividends up until the sale, then I really don't understand why there is any incentive to hold when the share price is already at $31+. Does that seem like a reasonable conclusion?
     
    Three Eyes likes this.
  4. Three Eyes

    Three Eyes 2018 Stockaholics Contest Winner

    Joined:
    Dec 14, 2017
    Messages:
    485
    Likes Received:
    633
    For my personal situation, that is what I would conclude. Trading now at 31.84, the extra .16 would not be worth it for me, but your situation is likely different and you have to apply your own calculus as to what to do next. As you are a longer-term shareholder, you likely know a lot better than most what the chances are that a competitor will come along in the next couple days with an even better offer. And you would want to weigh that against the potential that the current offer falls through for any other reason, as well as the opportunity-cost lost for tying up your ca$h in IPHS while you wait. Good luck!
     
    TheSmelloscope likes this.
  5. TheSmelloscope

    Joined:
    Nov 15, 2019
    Messages:
    51
    Likes Received:
    14
    Ok thank you again @Three Eyes , I really appreciate you taking the time to help me understand the situation.
     
    Three Eyes likes this.

Share This Page