Why Collective Brands Shares Jumped

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 Payless ShoeSource parent Collective Brands (NYSE: PSS  ) tacked on as much as 10% in intraday trading after it was reported that South Korea's E-Land Group may acquire the company.

So what: A South Korean newspaper revealed that E-Land may be working on a $1.8 billion bid for Collective Brands. E-Land is reportedly collaborating with the National Pension Service and Korea Development Bank to help fund the purchase. A spokesman for E-Land told Bloomberg that "E-Land seeks to buy Collective Brands" but declined to provide any details of the potential offer, including the price.

If $1.8 billion is indeed the offer that E-Land is considering, then it could be great news for Collective Brands shareholders, since the company is currently valued -- after today's jump -- at roughly $1.2 billion.

Now what: This is tricky. It would seem that there is the potential for significant upside if E-Land's bid comes through as rumored. However, merger and acquisition rumors have a bad tendency of breaking investors' hearts -- and damaging their portfolios -- when news doesn't live up to rumor. A speculator with a stomach of steel may want to jump in based on these rumors, but Foolish investors may want to keep their focus on the underlying business fundamentals and what the business is actually worth.

Want to keep up to date on Collective Brands? Add it to your watchlist.

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Fool contributor Matt Koppenheffer has no financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter, @KoppTheFool, or on Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


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