April 21, 2011
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 security equipment manufacturer China Security & Surveillance (NYSE: CSR ) shot up today on news that its management team has entered into a management buyout agreement. Shares were up as much as 20% in intraday trading.
So what: It's not breaking news that management had designs on taking the company private; the company announced in March that it had received an offer. However, at the time there were very few transaction specifics offered. Today, the company not only offered some more details, but it announced it has agreed to the buyout offer. Under the agreement, shareholders will receive $6.50 in cash for their China Security & Surveillance shares. Management will be getting financing for the transaction from China Development Bank.
Now what: As of this writing, investors appear to be a bit skeptical that this buyout will go through. With shares trading at roughly $5.50, investors are allowing shares to sit well below the proposed takeout price. For those confident that the buyout will go through, there's an arbitrage opportunity here of close to 20%. However, with all of the concerns circling about Chinese small caps, if the deal falls apart for some reason, the stock would likely get hammered.
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