Few catalysts can move a stock in a single trading day as much as news that its become a potential takeover target, and buyout news is often preceded by buyout rumors. Fitbit (FIT), Yahoo! (YHOO) and SolarCity (SCTY) have all been on the move this month on takeover talk. Here’s a closer look at the chatter surrounding each name.
Fitbit (FIT)
FIT’s stock is down 64% in the last six months on fears that competition is going to eventually overwhelm the wearable device maker. However, the stock is already up 18% so far in March. One reason for the big move is a market rumor that Nike (NKE) could be interested in a buyout. There has yet to be any official news on the subject from either company. FIT’s fall from grace continues to lower the stock’s compelling 9.9 forward PE.
Back in January, Piper Jaffray analyst Gene Munster said that FIT stock owners can mark Apple (AAPL) off the list of potential buyers, claiming that AAPL has access to the “same technology” as Fitbit. Muster argued that AAPL would likely prefer to compete with FIT rather than join forces. If NKE sees FIT in the same light, the market may have been premature to speculate about a buyout.
Yahoo! (YHOO)
The buyout gossip surrounding YHOO is a bit more convincing than unsubstantiated rumor. On March 2, CTFN reported that Yahoo! had sent out nondisclosure agreements to potential buyers. Companies rumored to be interested in a YHOO takeover include private equity firms Bain Capital and KKR. Verizon Communications (VZ) CEO Lowell McAdam has openly acknowledged the company’s interest in YHOO.
YHOO is in a tricky situation for a takeover because the company could potentially be on the hook for up to $12 billion in capital gains taxes due to its large stake in Alibaba (BABA). However, accountant and tax advisor Robert Willens believes that a three-way deal between YHOO, VZ and BABA would be a winning situation for all involved. If Verizon buys only YHOO’s core business and not its Alibaba assets, BABA could then swoop in and acquire the remaining YHOO shell company in a second buyout. In essence, the takeover would be akin to a share repurchase. In that scenario, no company (or its shareholders) would be on the hook for capital gains taxes.
SolarCity (SCTY)
As of March 1, SCTY shares had fallen 68.8% over their last year of trading. But in March the stock has surged 49% on rumors that Tesla Motors (TSLA) CEO Elon Musk might completely buy out the company. While Musk has given no public indication that a full buyout is in the cards, he did recently up his stake in SCTY to 22.6%.
SeekingAlpha noted that a short squeeze was likely responsible for a majority of the spike in SCTY, but there’s little doubt that the Musk rumors were a major catalyst for the move. Even if Musk doesn’t follow-up with a full takeover of SCTY, the fact that he upped his stake in the company serves as a much-needed vote of confidence for the slumping stock.
As of this writing, Wayne Duggan was long BABA.
