Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Titanium and specialty metals manufacturer RTI International Metals (UNKNOWN:RTI.DL) stock surged as much as 45% in early trading on March 9, after it was announced that the company would be acquired by aluminum giant Alcoa Inc (NYSE:AA). Here's what the two stocks have done so far (through 1:00 p.m. EDT) today:
So what: The $1.5 billion deal is all stock-based, with each RTI Metals shareholder getting 2.8315 shares of Alcoa stock for each share of RTI Metals held. Based on a recent price of $13.45 per share of Alcoa stock, that values the RTI shares at just over $38 at recent market prices, a slight premium to the current market price for RTI Metals stock.
Now what: Current RTI Metals shareholders have a few options to consider before making a move. As a starting point, you'll need to decide if you're interested in owning shares of Alcoa, because if you do nothing, that's what you'll get once the transaction closes. The benefits of taking Alcoa shares are as follows: Since it's a stock-for-stock transaction, you'll likely not have to pay taxes, versus a cash transaction which would result in capital gains.
Furthermore, Alcoa pays a dividend, currently worth just under 1% yield at current Alcoa share prices, which would translate to about 34 cents per share of your current RTI Metals shares. If you're a long-term RTI Metals shareholder, who, a) is considering moving on to an income-paying stock, and b) holds the shares in a taxable account, then it's worth at least considering taking the Alcoa shares.
However, Alcoa is very unlikely to grow at anywhere near the rate that RTI Metals has over the past few years, even with the strong -- and growing demand -- for aluminum that we're currently seeing. So if you're looking for a company with better growth prospects, it's probably time to move on. Bear in mind that the stock prices will move up and down together now, as the transaction is stock-based.
If you're planning to sell before the transaction, bear in mind the benefits of holding your RTI shares more than one year in order to avoid the tax consequences of short-term gains. If you're close to the one-year anniversary of your most recent buy, it's probably worth holding until after that date so that your gains would be taxed at the lower long-term capital gains rate.
If you're planning to sell your RTI Metals shares, but not sure where to invest yet, check out the link below.