What: Shares of PowerSecure International (NYSE: POWR) are up more than 87.5% at 12:35 p.m. ET on Feb. 25 following the announcement that the company, which makes and sells distributed power systems, energy-efficient lighting products, and infrastructure components for electric utilities, has agreed to be acquired by utility giant Southern Co. (NYSE:SO) for $18.75 per share in cash.
So what: The acquisition will benefit Southern, especially as more and more utility customers move to renewable and distributed power generation and take steps to improve their energy efficiency. In other words, Southern is taking this step as a defensive move, allowing it to continue to monetize customers who are taking steps to reduce their reliance on power utilities.
For PowerSecure, the move is a big win for shareholders who have bought since May 2014's major earnings debacle, when a refocusing of the company's business led to big losses and revenue shortfalls and the company's share price falling by 62% in a single day.
Now what: Barring a bidding war by another company, there's probably not much upside for PowerShare investors. The stock is trading at about $18.52, slightly below the $18.75 per share Southern will pay for the company. It's typical that a stock price will trade at a slight discount to the closing price for a merger or buyout, but the gap will steadily narrow as the deal -- which is expected to close in the second quarter -- nears completion.
Depending on your situation, you may want to sell now or you may want to wait. If you hold shares in a tax-deferred retirement account, there's little reason to hold your shares besides eking out the small premium still remaining, especially if you have an idea of where to reinvest your proceeds in mind already.
But if you hold shares in a taxable account and you've held them less than one year, it may be worthwhile to hold a little longer, if you can get past the one-year mark before selling. This is because if you sell shares you've held for less than one year, you'll be subject to short-term capital gains tax, which is based on your marginal income tax rate, while long-term gains -- anything you've held more than a year -- would be taxed at the long-term gains rate of 15% for most people and 20% for some very high earners. Either way, the long-term rate is almost definitely going to be lower than your marginal income tax rate.
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