What: Shares of building product company Nortek Inc. (NASDAQ: NTK) popped 40% in morning trading on Wednesday after management agreed to a buyout offer.
So what: Melrose Industries PLC has agreed to buy Nortek for $2.8 billion, including debt, or $86 per share in cash to shareholders. Melrose has created a subsidiary called Nevada Corp. that will technically merge with Nortek and then become a wholly owned subsidiary of the U.K.-based company.
The premium is big for today, but it's also an 80.4% premium based on the volume weighted average price over the past six months. Melrose is a turnaround company that has already identified supply chain and IT improvements it can make at Nortek, which is why it's willing to pay the premium.
Now what: Interestingly, shares have already zoomed higher than the offer price, trading at $87.33 per share as of 11:40 a.m. EDT. That implies that investors think a better offer from Melrose is coming.
While a higher offer could be in the works, I would take some profits today given the big premium Melrose is offering. It could back out of a deal or it could close at the current offer; both options present downsides for investors. Continuing to hold shares is risky, as a higher offer may not be in the cards with 68.7% of shareholders already planning to tender shares in the current offer.