What happened
Shares of Pilgrim's Pride (PPC -0.33%), a meat producer with a focus on poultry, fell sharply at the start of trading on Feb. 18. It's a bit of a long-running story, however it looks like the tale has reached its end. Investors weren't pleased with the news.
So what
In August 2021 international meat giant JBS S.A. made an offer to buy Pilgrim's Pride's outstanding shares for $26.50 each. JBS already owned roughly 80% of the stock, so it was basically an effort to simplify its business by pulling Pilgrim's Pride off of the market as its own stand-alone entity. The board of Pilgrim's Pride decided that the offer wasn't good enough. JBS eventually came back with an offer of $28.50, which was again rejected by Pilgrim's Pride's board.
Image source: Getty Images.
Now it is JBS that is doing the rejecting. The Brazilian meat company has now stated that it is no longer interested in buying the remaining 20% or so of Pilgrim's Pride that it doesn't own. But here's the thing: With most takeover situations Wall Street starts to bid up the shares of the company that is rumored to be acquired. Generally the price goes up toward, but not completely up to, the takeout price. And that's exactly what took place with Pilgrim's Pride, which spiked on the news of JBS's offer. But, now that the offer has been rescinded, the stock has come back down to earth. Not that shocking.
Now what
The drop in Pilgrim's Pride's stock price is important to keep in the back of your mind if you like to invest in special situations like takeovers. They don't always pan out. That's why the stock price generally doesn't get all the way to the takeover offer. The slight discount represents the risk that things go awry, just like they did here. And, logically, with the JBS deal now off the table, Pilgrim's Pride stock has dropped as special situation investors move on to other deals. If nothing else, this is a real-world investing lesson that you shouldn't forget.
