Thinking Your Way Through A Corporate Takeover

First Quantum has sent the details of its takeover proposal to Inmet shareholders and now awaits their response. Here we present three options that Inmet shareholders, or any shareholders that face this kind of scenario, have before them.

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

There are few better feelings than waking up to the news that a company you own shares in has received a takeover offer at a significant premium to the prior day’s close.  An immediate sense of bravado takes over and for the first time in months, you are very likely to log in to your quote provider of choice at 9:30am, as the market opens, to bask in the glory of your new found wealth.

But wait.  What if that price you see as the market opens isn’t the takeover price you read about.  It’s higher!  What’s going on?  How high could this thing go?  Both very fair and very human questions.  However, when it comes to investing, thinking like a human doesn’t tend to work.  To best handle this kind of scenario, we don’t want you to think like a human.  We want you to think like a Fool!

We Got a Live One

This very scenario is currently playing out in the Canadian market as First Quantum (TSX:FM) has made a third offer for fellow copper producer Inmet (TSX:IMN).  After being rebuffed by Inmet’s board at $62.50 and $70, First Quantum is taking its new offer of $72 per share to Inmet’s owners, the public shareholders, to seek their approval.  Inmet shares however currently trade above this $72 level, an indication that the market expects First Quantum, or somebody else, to pay even more.

This kind of scenario can leave Inmet shareholders, or any shareholder of a company facing a similar situation, scratching their head as to what to do next.  What’s the right move?  The way we see it, there are three options, two primary and one hybrid.

Option #1

The first option is to take the market price that is higher than the bid, and liquidate your entire position.  Essentially, take the money and run, thus removing all risk that the deal goes through at the offered price (lower), or worse, doesn’t go through at all.  While selling out will allow you to immediately line your pockets, it doesn’t necessarily allow you to participate if subsequent bids are made.  This could mean you’re leaving thousands of dollars on the table.  Not ideal from a financial standpoint, but potentially much worse when it comes to your investment psyche as your regret from selling could be significant.

Option #2

Do nothing.  This implies that you are whole heartedly convinced that another bid is coming.  By doing nothing, you are trading the risk that the deal falls through for the upside potential that another bid would bring.

Option #3

The hybrid solution involves selling a portion of your holdings, but holding onto the rest in case another bid does arrive.  From an emotional standpoint, the hybrid is in most cases the easiest to digest.  By selling some of your position, you are at least able to crystallize a portion of the gain you have made.  In addition, you are reducing the risk that something goes awry with the deal.  Even if it falls through, chances are that you’re still going to feel good about yourself for having taken some money off the table.

On the other side, you leave the door ajar to participate should a higher bid appear.  In this case, you won’t feel the regret that you would have had you completely sold out (option #1), although you’ll be less well off financially than you would have been had you just gone with option #2.

Learning From Each Other

For investors, this whole process boils down to “regret minimization,” a term that I first heard from Motley Fool co-founder David Gardner, who in turn had it described to him by founder Jeff Bezos.  These corporate transactions have a lot of variables at play. You want to make the decision that will minimize your regret, regardless of how it all plays out.

Even though we’re dealing with a financial transaction here, we suggest that whatever action Fools take should maximize that initial sense of awesome that you felt when you first learned of the takeover.  This doesn’t always mean maximizing your profit.  Understand your financial upside, and downside, before making a decision but under most of these takeover situations, your brain will thank you for taking the hybrid route.


Neither Iain Butler nor The Motley Fool owns any of the stocks mentioned in this article.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

growing plant shoots on stacked coins
Dividend Stocks

2 Oversold TSX Dividend Stocks to Buy Now and Own for 25 Years

These top TSX dividend stocks look oversold and now offer attractive yields for TFSA and RRSP investors.

Read more »

money cash dividends

Passive-Income Power: How to Make $105/Week TAX FREE in a Bear Market

Investors may want to pursue a passive-income strategy in this bear market by snagging dividend stocks like Freehold Royalties Ltd.…

Read more »

Money growing in soil , Business success concept.
Energy Stocks

3 Growth Stocks up +30% in 2022

These three growth stocks are up over 30% in 2022 alone but have come down in the last few weeks…

Read more »

Oil pumps against sunset
Energy Stocks

2 Energy Stocks That Jumped Over 60% This Year

Consider investing in these two energy stocks amid the recent pullback after putting up stellar gains earlier this year.

Read more »

Profit dial turned up to maximum
Dividend Stocks

RRSP Investors: 2 Undervalued TSX Stocks to Buy Now for Total Returns

Top TSX dividend stocks are now on sale for RRSP investors seeking attractive total returns.

Read more »

TFSA and coins
Dividend Stocks

2 Beaten-Down Stocks to Buy for Your TFSA

Two beaten-down, but high-yield TSX stocks are profitable options for TFSA investors.

Read more »

Volatile market, stock volatility
Stocks for Beginners

3 Top TSX Stocks to Buy in Volatile Markets

Sitting on cash? Consider these three TSX stocks for the long term.

Read more »

Hand writing Time for Action concept with red marker on transparent wipe board.
Dividend Stocks

Inflation Soars to 7.7%: 1 Dividend Stock to Buy Now

Enbridge (TSX:ENB)(NYSE:ENB) stock looks like a magnificent dividend stock to help Canadians deal with inflation at 7.7%.

Read more »