Shares of Houghton Mifflin Harcourt Company (HMHC) jumped as much as 15.3% in trading on Tuesday after the company announced it would be acquired. Shares traded in a small range today and closed near the high for the day.
Private equity firm Veritas Capital has agreed to buy Houghton Mifflin Harcourt for $2.8 billion. Investors will receive $21 per share in cash, a 36% premium to trading prior to rumors of a deal hitting the market.
Management said they went through a thorough process of evaluating potential buyers, and that's likely why shares are already trading near the buyout price. The company also said the acquisition is expected to close in the second quarter, which is a relatively quick turnaround.
Given that shares are trading within pennies of the buyout price, investors can be comfortable taking some of today's gains off the table. Sometimes shares trade well below a buyout price because of the risk it won't close and sometimes trade above the price because traders believe there's a better deal out there. Both of those risks seem to have been mitigated in this case, and there's very little upside between now and the expected close of the acquisition in the next few months.