Shares of Extended Stay America, Inc. (STAY) jumped as much as 14.8% in trading on Monday after the company announced it would be acquired. Shares traded in a very small range by mid-day and are up 13.6% at 3:30 p.m. EDT.
Extended Stay America announced that a 50/50 joint venture between funds backed by Blackstone Real Estate Partners and Starwood Capital Group would acquire the company for $19.50 per share, or about $6 billion total, paid in cash. The price is a 23.3% premium over the 30-day, volume-weighted average share price, although it's a smaller premium from Friday's close.
The deal is a little hard to judge because we have yet to see the recovery in the hotel business after the pandemic. Management reported a 41.7% drop in revenue during 2020, but it's conceivable there will be a similar increase in revenue this year. On the bright side, the price is higher than shares have traded at in nearly two years.
Based on where shares are trading, the market doesn't anticipate a bidding war for Extended Stay America. Given the price compared to where shares have traded this year, that makes sense. Because of the small premium investors are getting to hold shares today, this doesn't seem like a value stock to hold anymore. Taking at least some of your chips off the table is probably a good idea because the biggest gains have been booked.