Why Brookfield Stock Fell on Thursday

Brookfield is on the acquisition trail. Should you buy or hold?

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Investors were likely disappointed this morning to see their Brookfield Corporation (TSX:BN) shares dip by about 2%. The fall came after Singapore Telecommunications (Singtel) announced it would consider selling a large share of its Australian subsidiary Optus to Brookfield stock. So, why were investors upset over the news?

What happened

The fall in Brookfield stock comes from a variety of reasons. First off, investors were likely also upset with Singtel, considering the company denied in an earlier report that it would consider a full buyout of Optus. Yet the company has been looking to optimize its assets, so this may be part of that plan.

The news also comes after trouble with Optus, including a network outage and the departure of its chief executive officer. Furthermore, Singtel recently sold shares of another company in a similar strategy.

And that is a whole lot to consider for Brookfield, which has had its own troubles. This includes Brookfield Office Properties, where Brookfield stated that the market is overrun with office properties.

So why buy now?

This was likely the question investors had given the ongoing issues both with Brookfield as well as Singtel and Optus. What’s more, the denial may be on deck still, as the claims that talks are happening could simply signal a partial stake sale rather than an entire divestment.

This would certainly be beneficial to Singtel, which has seen stagnant earnings, and already sold its Bharti Airtel company to optimize its portfolio. Yet there are potential benefits for Brookfield at this point.

Brookfield has long been known as a buy low investment firm. The company has plenty of cash on hand to make these kind of investments with long-term goals in mind. And now could certainly be a good time to swoop in and offer a low price. Especially if the potential for growth or profit from Optus is there despite recent issues.

Stay on the sidelines

For now, I would recommend investors stay on the sidelines. There actually isn’t anything set in stone yet, and Brookfield stock may even have put out this anonymous news to see how the market would react.

Full details are also not public, including the purchase price and size of the stake in Singtel. Investors will therefore simply need to be cautious until they know more about the deal. Especially on how the company would plan to handle the recent Optus network outage, CEO departure, and even a potential fine.

All this would certainly come with a cost. And it would be a large acquisition cost at that. So Brookfield stock may need to take on debt to finance the purchase. Investors will certainly be concerned about that given company performance coupled with ongoing high interest rates.

So, bottom line, stay up to date on the details for now. Nothing is set in stone, and investors may want to wait until the dust settles before considering whether this is a smart investment on Brookfield stock’s part, or not.

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.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Brookfield and Brookfield Corporation. The Motley Fool has a disclosure policy.

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