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 electronic dance music live event producer SFX Entertainment (NASDAQ: SFXE) are trading 32% higher today following news that SFX CEO Robert Sillerman intends to take the company private by acquiring all outstanding shares.
So what: Sillerman already owns 39.8% of SFX's shares, and he's proposed a buyout whereby he would pay $4.75 per share for the other 60.2%. The $4.75 buyout price not only represents a discount to current prices of roughly $4.90 per share, it's also less than half what shares traded at when the company went public in October of 2013, for $13.00 per share.
Now what: An in-depth Forbes report on the buyout offer notes that Wall Street investors and analysts are not happy with the deal. Minority stakeholder Maglan Capital believes that shares should be worth more than $10 per share. Albert Fried analyst Richard Tullo also called the offer "an insult to investors," and thinks that SFX is worth at least 50% to 100% more than what Sillerman has offered.
SFX is deeply unprofitable on both an EPS and free cash flow basis, but its top line has grown tremendously since going public, as it's more than doubled since the start of 2014. Sillerman has cannily played the financial markets to his advantage since taking SFX public, and today's offer would be an extremely canny move for the near-billionaire -- his net worth was $975 million as of the latest Forbes Richest Americans report -- regardless of outcome.
If SFX shareholders hold out for a better deal, Sillerman's 39.8% stake will appreciate further. If they accept his offer, he'll gain full control of a company that was worth roughly $1 billion in 2013 at a significant discount. Regular investors will simply be coming along for the ride now -- this is Sillerman's show, one way or another.
