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Doug Gerlach
Cambridge, MA
http://www.iclub.com/
President, ICLUBcentral
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| 12/21/2006 10:59 AM |
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Biomet announced that their board has approved a plan to be taken private at about $44, to be paid in October 2007. So the question is: hold or sell BMET shares?
Here are my thoughts:
One way to look at it: If you assume that the deal will be approved by shareholders and there will be no antitrust problems, then the most that your current shares will be worth in the next 10 months is $44 a share. At the price right now of about $41.45, that's a 6.2% return (7.9% annualized, if I did the math right) assuming the deal concludes on 10/1/2006. If you think you can use the proceeds from the sale of BMET to invest in something that will generate a higher rate of return than that, then it may make sense to sell instead of waiting for the buyout to happen. (The share price will gradually increase to become closer and closer to $44 as October gets nearer and the arbitrageurs play the differential.)
Another consideration: if selling will generate a lot of capital gains, then waiting until early January to sell means that you won't be liable to pay taxes on those gains until 2008. The price isn't likely to change too much in the next 12 days as long as the deal is on the table.
If you think that the deal is unlikely to be completed, then you might decide to hold on to your shares in the belief that the company will continue to grow if it remains independent. However, if the deal gets sidetracked, then it may be that the price will drop, which could create a buying opportunity for you.
At the current price, it seems pretty clear that most of the market thinks that the deal will go through and the stock is priced accordingly. If you agree with that assessment, then the case for selling sooner rather than later is pretty strong.
Doug
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Posting from ICLUBcentral world headquarters in the Harvard Square's historic College House, Cambridge, MA
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