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: Shares of small independent oil and gas producer Rosetta Resources Inc. (NASDAQ: ROSE) are up more than 25% today, following the announcement that it would be acquired by larger independent oil and gas producer Noble Energy Inc. (NASDAQ:NBL). Noble Energy shares are down about 7% following the announcement.
So what: In the all-stock and debt assumption deal, Rosetta Resources shareholders will receive .542 shares of Noble Energy stock for each share of Rosetta Resources when the merger is complete. According to the press release, this should occur sometime in the third quarter.
Now what: This could be the first step in some serious consolidation in the U.S. onshore production business, with Rosetta Resources just one of many smaller producers with big debt and uncertain cash flows as oil prices remain weak. What should you do if you're a Rosetta Resources shareholder? It depends on your situation.
To start, if you're interested in holding shares of Noble Energy, you can avoid tax consequences by just standing pat and letting your shares convert to Noble Energy shares when the merger becomes official. However, if you're not particularly interested in holding shares of Noble, and you hold your shares in a taxable account, you should consider how long you've held the stock before selling.
Considering that the stock is still down about 46% from where it was a year ago, you're probably still losing money unless you bought the stock either after early December or before 2011. In other words, there's not likely to be any tax benefit to holding your shares if you're not interested in being a Noble Energy shareholder. If you already know what you want to invest in next, you might as well move on. Rosetta Resources' stock could go up in the short term, but as you should know by now, that's largely a product of oil prices moving, and there's just no way to predict what's going to happen between now and the finalization of this merger.