Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Eros International Both Rose 42% and Fell 23% in One Day

By Jon Quast - Updated Apr 20, 2020 at 4:09PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

STX Entertainment is going public via a reverse merger.

What happened

It was a wild Monday for shareholders of Indian movie studio Eros International (ESGC). The stock initially rose 43% before cratering as much as 22.6%. By market close, investors were still down a painful 18%.

It appears that investors aren't certain how to process the news that Eros International is merging with privately held STX Entertainment. 

A bull and a bear.

It was an up and down day for Eros stock. Image source: Getty Images.

So what

STX Entertainment is listed as the surviving corporation in the merger agreement, meaning this is what is commonly called a reverse merger, which allows a company to go public without the pressures of an initial public offering (IPO) process.

Eros International has generated $206 million in trailing-12-month revenue, down 24% from the comparable 12-month period. By contrast, STX Entertainment generated $400 million in 2019 revenue, not bad for a studio only founded in 2014. With more revenue and growth, it makes sense that STX Entertainment would be the surviving corporation.

The new company name will be Eros STX Global Corporation and will continue to trade on the New York Stock Exchange. STX Entertainment founder Robert Simonds will assume the CEO role in the new company.

Now what

The press release is understandably bullish on the merged companies' prospects, using terminology like "leading" and "powerhouse." But reverse mergers don't give investors as much transparency as a traditional IPO. While there are some successful companies that went public this way, it's best to wait until more is disclosed after the completion of the merger.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Eros International Plc Stock Quote
Eros International Plc
ESGC

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.