What happened
Shares of Arconic (HWM 2.91%) rose over 11% today after The Wall Street Journal reported that the company is weighing multiple takeover bids. Blackstone Group and Carlyle Group joined forces to make a combined offer, while Apollo Global Management is also courting the management of the specialty metals producer, according to the Journal.
Just last week, rumors of a buyout helped lift Arconic shares off multiyear lows. Today's pop has only added to the market's enthusiasm for a buyout, with the stock now having gained 27% in the last month.
As of 2:03 p.m. EDT, the stock had settled to an 11.1% gain.
Image source: Getty Images.
So what
Arconic shares have been trapped in a downward spiral for much of 2018, as investors largely lost patience with the company's ongoing turnaround strategy. While new leadership was brought in, new CEO Chip Blankenship has been pretty blunt about the state of the business. The new tone has been refreshing for investors who have endured some unusual scandals from the company's previous management. Nonetheless, the business needs work.
There have been signs recently that Arconic is making the right moves to position itself for long-term success, including doubling down on important research and development, and launching innovative new products for the highest-margin applications available (aerospace and defense). But Blankenship also told investors that he would consider buyout offers if they created value for shareholders. If recent reports are to be believed, those discussions may be ongoing.
Now what
While a buyout would provide immediate value for shareholders, especially relative to the recent lowly stock prices, The Motley Fool's Lou Whiteman has argued that a buyout would forfeit the potential for considerable long-term upside. In fact, that may explain why multiple private equity firms are competing to buy Arconic. For investors, this is a bittersweet inflection point for the company. But if a buyout doesn't come to pass, then it may be worth giving the stock a hard look.
