Reader Radar: Help, My Stock Received a Buyout Offer

By Andrew Nyquist
First and foremost, I want to thank the many readers that take the time to send in comments and questions each week.  As a way of showing my appreciation, I am starting a column called Reader Radar, in which I will highlight a recent comment or question from a reader that touches on an important learning for all.  So keep the questions coming!

This week, reader Terry wrote in with this:

Andy,
You were kind enough to share your thoughts on El Paso (EP) a while back.  Well, I got lucky.  Kinder Morgan (KMI) is purchasing El Paso Corp and the stock has jumped from $18 to $25 on the M&A announcement.

As your earlier thoughts indicated that $21 was resistance, does this mean that I should now consider selling above this level?  Or is this line of thinking out the window due to the merger?  Do you think I should take the money and run or hang onto EP for a while?

Thanks,
Terry

Hi Terry,

Thank you for your comments and congratulations on your good fortune.  Shouldn’t we all be so lucky!  In buyout situations like the one described above, charts and technical analysis go out the window (chart below shown for visual effect of prior resistance at 21, followed by your good fortune — yeah baby!).  The only lines of reasoning that I can see for holding on would be the possibility that another suitor comes in and makes a higher offer or that the energy sector moves significantly higher in the near term.  Could happen, but I am always careful not to be too greedy.  Your short term risk, however, is that the deal falls apart due to some unforeseen event or regulatory hurdle; unlikely, but does happen from time to time.  Speaking for myself, I would “take the money and run,” or at a minimum take 2/3 of the position off.  Hope this helps as you consider your options.  Don’t forget to celebrate!

Congrats again, and thank you for being a See It Market reader.

Best,
Andy

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No positions in any of the securities mentioned at time of publication.

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of his employer or any other person or entity.