Shares of train-car maker American Railcar Industries (NASDAQ:ARII) stock surged more than 50% when the market opened this morning. And they look likely to hold onto their gains, with the share price firmly ensconced up 50.9% as of 12:45 p.m. EDT. The reason:
This morning, American Railcar announced a definitive agreement to sell itself to private equity fund ITE Rail Fund L.P. for $70 a share -- precisely 51% more than the stock cost at the closing bell last week.
In a statement, American Railcar noted that the total value of this transaction is $1.75 billion including assumed debt. That's neither here nor there for most investors -- but owners of the stock should be more than satisfied with their one-day 51% gain, which wipes out all the stock's losses from over the past year and leaves American Railcar stock up 18% for the past 52-week period -- a better result than most investors in the S&P 500 have achieved.
With this deal apparently set in stone and Mr. Market valuing American Railcar stock at almost precisely the advertised purchase price, it appears investors aren't expecting any competing bids to drive the price higher. At this point, shareholders have two options: First, wait until the transaction closes sometime before year end (assuming regulators approve it) and hope everyone else is wrong and a competing bid emerges.
Or second, sell your shares now, pocket the gains, and avoid any risk that regulators will not approve the deal. I think Door No. 2 is the better choice today.