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Why iDreamSky Technology Ltd. Stock Dropped Today

By Steve Symington – Jun 15, 2015 at 8:53AM

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Is iDreamSky's drop meaningful? Or just another movement?

What: Shares of iDreamSky Technology Ltd. (NASDAQ: DSKY) were down 10.7% as of 2:50 p.m.  Monday after the mobile game specialist announced it had received a preliminary non-binding proposal to acquire the company.

So what: Specifically, iDreamSky Chairman and CEO Michael Xiangyu Chen has offered to purchase all outstanding shares not already owned by him or his affiliates for $14 in cash per American depositary share. Shares of iDreamSky Technology closed Friday at $14.57 per share, or 4% higher than Chen's offer. As it stands, Chen and his affiliates already own 22.1% of all outstanding iDreamSky shares, representing roughly 40.6% of the company's total voting power.

Now what: To be fair, iDreamSky stock is still up 55% over the past month even after today's drop, and the offer represents a 24.5% premium to the stock's volume-weighted average closing price during the last 30 days. iDreamSky also notes it has made no final decisions, and has formed a special committee of independent directors to consider the proposal.

On one hand, if the company decides to accept the offer, that leaves roughly 8% upside from the stock's current level around $13 per share. On the other hand, given iDreamSky's massive gains over the past month and the possibility of this acquisition falling through, I wouldn't blame shareholders for taking at least some of their quick profits off the table today. 

Steve Symington owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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