When it comes to boring stocks, most investors will buy in, knowing that it will be slow and steady as she goes. So, investors were incredibly joyful last week when Park Lawn (TSX:PLC) suddenly saw its shares almost double in price.
So, what gives? Let’s get into why shares of Park Lawn stock jumped by 68% after a major announcement.
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What happened?
First, the details. Shares of Park Lawn nearly doubled last week after the company announced it was going private in a deal valued at approximately $940 million. The acquisition offer, led by Homesteaders Life Company and Birch Hill Equity Partners, was priced at $26.50 per share, representing a 62.1% premium to the closing price prior to the announcement. This substantial premium drove the surge in stock price as investors reacted positively to the buyout offer.
But it’s not over yet. Completion of the transaction is expected by August 2024, subject to customary conditions such as court, regulatory, and shareholder approvals. Park Lawn’s quarterly dividend and dividend-reinvestment plan have been suspended during the transaction period. Furthermore, Park Lawn’s senior unsecured debentures will be redeemed at 102.875% of their outstanding principal amount plus accrued interest.
What happens now?
So, what exactly happens when a company goes private? The company’s shares are removed from public stock exchanges, meaning they are no longer available for public trading. This is expected to happen for Park Lawn upon completion of the transaction, as its shares will be delisted from the TSX.
The ownership of the company shifts from public shareholders to private investors or entities. In the case of Park Lawn, Homesteaders Life Company and Birch Hill Equity Partners will become the new owners. Meanwhile, existing shareholders are bought out at a premium, which is the price agreed upon in the acquisition deal. For Park Lawn, this is $26.50 per share, a significant premium over its pre-announcement trading price.
Should you buy?
Now, the big question. Investors might consider buying Park Lawn stock before it goes private for several reasons, but they should also weigh the risks and benefits carefully. The announced buyout price of $26.50 per share is a significant premium over the pre-announcement trading price. If the stock is trading below this price, there may be an opportunity to profit from the difference when the buyout is completed.
What’s more, there is low risk of deal failure. The transaction has backing from reputable firms (Homesteaders Life Company and Birch Hill Equity Partners), and the deal includes customary protections like termination fees, which can mitigate the risk of the deal falling through.
So, if the deal is expected to close soon (by August 2024), this could be a relatively quick investment for those looking for short-term gains. However, the transaction still requires approval, and broader market conditions could affect the stock price. What’s more, investors should consider whether their capital could be better utilized elsewhere during the time it takes for the transaction to complete.
Bottom line
Park Lawn stock could still be a good buy before going private. However, only with a share price below that $26.50 amount. With that in mind, investors could certainly take a position during a dip, setting up alerts for if it comes up. Then, you could rake in some serious gains before the stock goes private come August.
