Last November, I purchased shares of PORK at $18. If you recall, I’ve previously written about my decisionmaking process on this purchase and concluded I’d bought at too high of a premium. It’s wobbled back and forth a bit since then, but never actually returned to $18, confirming my suspicions of paying too high a price.
On Friday, the stock abruptly jumped almost 7% to close at $17.73, about the closest it’s gotten to my purchase price since I bought it, and today it was revealed that Smithfield Foods (SFD) has announced that it plans to acquire PORK. If approved (and there might be some antitrust concerns), PORK shareholders would receive 0.678 shares of SFD and $1.25 in cash for every share they hold. SFD is currently trading at about $28.50 or so, which would make each share of PORK worth around $20.57 or so. I’m inclined to sell on the news announcement later today, especially based on my experience with PORK so far. (Update: I sold my shares at $20.40.)
I’ll be honest and say I think I lucked out on this investment in terms of not having to realize a loss on it. I’d concluded a while ago that until I know more about what I’m doing, large-cap value plays might be safer choices (assuming there are any to be found), but this has been a nice surprise. The unfortunate reality, however, is that I doubt I’d be able to consistently identify small-cap companies that will be acquired by their larger competitors to the extent that I could make a consistent return on them!
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All this industry consolidation’s great, but what’s next? | Experiments in Finance
[…] Being relatively new to making my own investment choices, I find it sort of astounding that two of my previous choices have also benefited from ongoing industry consolidation as well. Just a couple of months ago, Smithfield Foods (SFD) announced it was purchasing Premium Standard Farms (PORK), a purchase I’d made last year and had concluded I’d bought at too high a price. […]