There’s nothing new about buyouts on Wall Street. They happen all the time, sometimes with outstanding results for both shareholders and the company, and sometimes with a raw deal for one, the other or both — the latter exemplified by cases like AOL (AOL) and Time Warner (TWX).
The latest high-profile buyout on Wall Street is between wireless carrier Sprint (S) and Japanese communications giant Softbank (SFTBF). The deal is likely to boost Sprint, which is the third-largest U.S. wireless carrier, by giving it the capital required to expand and take market share away from competitors AT&T (T) and Verizon (VZ).
Putting aside for a moment the merits of this particular deal, the issue here for Sprint shareholders became what to do when the company taking over your shares offers you either a cash buyout or shares of the new parent company-owned stock. Should you take a chance and stick with Softbank-controlled S shares, or should you take the money and run?
In the case of Sprint, shareholders overwhelmingly opted to take the money and run.
In a July 5 preliminary shareholder election, holders of about 53% of Sprint’s outstanding shares voted to take the cash payment. These shareholders will receive $5.65 in cash and 0.26174408 shares of new Sprint common stock for each common share owned. Interestingly, only about 3% of the shares voted to receive shares of the Softbank-owned Sprint common stock. Some 44% of outstanding shares did not cast a vote, so by default they will receive the cash deal.
Chris King, an analyst at Stifel Nicolaus & Co. in Baltimore, says the fact that only 3% of shareholders wanted the new shares shows that most aren’t going to stick around to see what happens. King told Bloomberg, “A lot of Sprint shareholders were probably playing the M&A game and aren’t really interested in riding it out operationally with the company for the long run.”
The sentiment here is the key to deciding what to do if a company you own gets bought out, and if you are in a position to vote your shares on which way to go. Should you take the money and run, like most Sprint shareholders chose to do, or should you stick with the company?
The answer depends on why you bought the shares in the first place.
Did you buy the stock because it was a takeover target, and because you were looking for a nice pop in the shares once a takeover deal was announced? If so, then it’s easy to recommend you simply take the money and run. If, however, you bought the company because of its fundamental and/or technical merits, and those merits remain intact, then a takeover that adds value to the shares could be the catalyst you were looking for to keep shares moving higher.
Like most decisions in life, the answer depends on your goals. If you’re looking to get in and get out as fast as possible, then by all means, go on take the money and run. If you’re in it for the long haul, then embrace the new ownership and give it a chance to do its thing.
After all, they didn’t buy the company because they thought they’d lose money.
As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.
