If you've been on either end of a takeover situation -- owning the shares of either the buyer or the seller -- the market dynamics should be familiar enough. The acquirer's shares usually trade down immediately following the announcement, while shares of the acquiree trade higher. In the market's judgment, which I wouldn't fault in this case, acquirers typically overpay, so the standard share price reaction is pretty reasonable.
When the shares of the acquirer rise following a takeover announcement, that's an unusual circumstance worth investigating. This is exactly the situation in the apparel space, with multiple instances over the past month or so.
In December, Oxford Industries
Today, Perry Ellis
So what is it with these apparel acquirers? How are they getting such good deals? Well, for one, both acquisitions are of private companies. Whenever there's a mismatch between public and private company valuations, there's an opportunity for arbitrage.
Also, in the case of Oxford, the management of the acquired company noted that it was not seeking a sale when Oxford approached it in 2010. Avoiding a competitive bidding process is a great start if you're hoping to not overpay. Leonard Green, which has offered to take J. Crew
So, have you seen any other acquirers' shares pop recently? Maybe this is less rare than I've supposed. Share any instances you may have spotted in the comments section below.
Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his Motley Fool CAPS profile or follow his articles using Twitter or RSS. 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 Fool owns shares of Oxford Industries. The Motley Fool has a disclosure policy.