The majority owner of Target Hospitality (TH 0.36%) would like to buy the shares it doesn't already own. Investors are excited about the potential payout, sending Target shares up 22% for the week as of Thursday afternoon, according to data provided by S&P Global Market Intelligence.
A short run as a public company?
Target Hospitality is a provider of modular accommodations and related services used in emergencies and in situations with temporary surging demand for lodging. The company went public via a 2019 merger with a special purpose acquisition company (SPAC).
Arrow Holdings, an affiliate of private equity firm TDR Capital, currently owns 64% of Target's shares, but it is looking to add to its stake. On Monday, Target announced that its board has received an unsolicited, non-binding proposal to acquire the remaining shares for $10.80 apiece.
The board has formed a special committee of independent directors to evaluate the offer. With the stock currently trading at $10.97, investors appear to be betting that the two sides will come to the table and negotiate a price higher than the initial $10.80 offer.
Is Target Hospitality stock a buy?
Target Hospitality shares still trade nearly 40% below the stock's early 2023 highs. Investors should resist the temptation to buy in today.
Even if the board can negotiate a premium price, much of that premium is already built into the share price and it is unclear if there is much upside to be had from those who might buy today. And if the two sides can't reach a deal Target Hospitality shares are likely to fall to around $9 per share, where they were prior to the offer being made public.
There is more downside risk than upside opportunity right now, and investors would do best to stay away.
