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Why Diamond Resorts International Inc's Shares Jumped 25% Today

By Travis Hoium – Jun 29, 2016 at 12:47PM

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A buyout agreement ends a tumultuous year for Diamond Resorts International Inc.

Image source: Getty Images.

What: Shares of timeshare company Diamond Resorts International Inc (NYSE: DRII) jumped as much as 24.6% today after agreeing to be bought out by a private equity group. Shares traded up 23.7% as of 12:20 p.m. EDT.

So what: Diamond Resorts has agreed to sell itself to Apollo Global Management for $30.25 per share, or $2.2 billion, in an all-cash deal. This is a 58% premium from when the company said it would seek strategic alternatives due to a low stock price. 

Now what: A lot of the downtrend that shares have seen in the past year was due to fear the timeshare industry will come under regulatory scrutiny because of high-pressure sales tactics. And that could still be the case -- but the risk now moves to Apollo.

With very little upside from where the stock currently trades to the offer price, I think it would be prudent to take some, if not all, chips off the table. The only upside potential is from Apollo raising its offer on the company, and there's just as much risk that the deal falls through. Given the pop in shares, it may be time to move on to other investment opportunities.

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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