What happened
Shares of Arco Platform (ARCE) trounced the market on Friday, jumping 15% by 3 p.m. ET. That's as compared to a flat result for the S&P 500. The boost was just enough to put the education software specialist back into positive territory for the year, although investors aren't seeing excellent returns to date. Arco shares are up roughly 2% in 2023 while the market has risen 16%.
Friday's rally was sparked by news that the company had struck a deal to go private.
So what
Management said before the market opened that Arco Platform has agreed to be purchased for $14 per share in cash. Investors had known since late 2022 that the board of directors was reviewing its options from different bidders. Yet today's news puts a concrete price on the deal. The company will merge with an entity called Bidders' HoldCo.
The purchase was unanimously recommended by a group of board members, under a few conditions. Arco Platform's founders, for example, will maintain a controlling stake of roughly 88% in the business following the merger, and they will maintain their positions in the company's leadership.
Now what
The stock price remains slightly below the agreed purchase price, which is normal in these situations. There is a slight possibility that the deal will fall apart, after all. This could happen if it doesn't gain regulatory approval.
Shareholders must wait for their shares to convert to cash, too. Arco Platform currently projects that the deal will close either in late 2023 or early 2024. There's a cost to waiting for a payout, and that fact also helps explain why the share price is below $14 today.
Yet the deal currently seems likely to conclude over the next several months, at which point shareholders will receive $14 for each share they own. Arco Platform will cease to trade on public markets and will become part of a larger enterprise.
