October 12, 2010
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of office supplies retailer OfficeMax (NYSE: OMX ) jumped more than 10% in intraday trading amid buyout rumors. The excitement was sparked when an analyst at JPMorgan Chase suggested that the company could be a good buyout target because of the room the company has to improve operations, along with the stock's valuation.
So what: It's no stretch of the imagination to think that a retailer like OfficeMax could be a takeover target. The company has the strong cash flow that private equity buyers like to see, and both P/E players and strategic buyers in the retail sector have been back on the acquisition trail lately. On Monday, Gymboree (Nasdaq: GYMB ) agreed to sell itself for $1.8 billion to Bain Capital, while Unilever (NYSE: UL ) said late last month that it's buying Alberto-Culver (NYSE: ACV ) .
Now what: Buyout rumors often prove to be just that -- rumors -- and the excitement of a buyer charging in and paying a big premium ends up fading. So investors who have their eyes on OfficeMax now are well-advised to get interested in the underlying company and the stock's valuation, not just the hope for a buyout. The same holds true for other rumored buyouts including Office Depot (NYSE: ODP ) -- also mentioned by the JPMorgan analyst -- and Avon Products (NYSE: AVP ) , which it has said could be snapped up by L'Oreal, Procter & Gamble (NYSE: PG ) , or Unilever.
Interested in more info on OfficeMax? Add it to your watchlist by clicking here.