When a company is acquired, the acquirer pays a large premium to where the acquired company’s stock price had previously been trading. Because of this, even the rumor of a takeover tends to have a significant effect on the stock price as speculators buy. Since takeover rumors are often false, it’s not necessarily wise to eagerly buy once an investor hears about them but they are certainly useful to know about if an investor is considering buying or shorting a stock. Read on for our quick take on five stocks where there have been takeover rumors recently.
$640 million market cap coal company Walter Energy, Inc. (NYSE:WLT) (over 9 million shares of Walter are traded per day, making for plenty of volume) is reportedly exploring a sales process. Low demand for steel has trickled backwards in the supply chain to low demand for metallurgical coal, and so Walter is unprofitable on a trailing basis with net losses expected both this year and next year as well. 41% of the float is held short as many market players are apparently confident that the company will remain independent and conditions will not improve.
Insider Monkey tracks quarterly 13F filings from hundreds of hedge funds and other notable investors as part of our work developing investment strategies; we have learned, for example, that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small cap strategy). We can see from our database that billionaire Steve Cohen’s SAC Capital Advisors increased its stake in Walter Energy, Inc. (NYSE:WLT) in the first quarter of 2013, to a total of 3.4 million shares (see Cohen’s stock picks).
Large pharmaceutical company Roche has been attempting to buy Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), a $23 billion market cap biotechnology company whose products include blood and genetic disorder drug Soliris; Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) has reportedly hired a sell-side advisor in response. Revenue and earnings have increased quite a bit as Soliris has been a hit in the drug market, but even in forward earnings terms there appears to be some deal premium baked into the valuation with a P/E multiple of 35. The company has ongoing trials for other applications for Soliris as well as for other drugs in its pipeline.