By Zach Scheidt
This post Hostile Takeover Returns For Individual Investors appeared first on Daily Reckoning.
“We’ve reached a temporary truce right now…” my good friend Eddie told me over breakfast at Chick-Fil-A.
“But there are some big changes coming down the line… In fact, I very well may not have a job a month from now.”
Eddie and I grew up together. We were college roommates, and we still keep in touch. And this weekend as we caught up over chicken biscuits, Eddie gave me a first-hand account of a dramatic transaction that is shaking up his career.
While this transaction may be giving Eddie sleepless nights, it’s part of a market trend that could make you a lot of money…
Eddie is the accounting controller for a large publicly-traded medical technology company. I won’t tell you which company because some of what Eddie shared with me may be confidential.
About a year ago, an influential investor bought a large stake in Eddie’s company. And since then, that investor has been actively pushing for changes in the company. Changes that should help the company become more profitable, and should drive the share price higher.
So far, the investor has been successful as the stock is up more than 50% this year alone.
“Honestly, I agree with most of his proposals” Eddie admitted.
“The two different business lines that we manage are hardly connected. And if we split the company into two different entities, investors could buy whichever stock they had the most confidence in. Eventually, both stocks should rise and that would be good for everyone!”
That’s exactly the type of change that this new investor is pushing for. And reading between the lines, that’s exactly what’s going to happen in the second half of 2017.
It’s the type of transaction that could make investors a lot of money.
And fortunately for us, there are many opportunities just like this popping up in the market right now.
Activist Investors Force Bigger Returns
Most investors look for companies that are profitable, well run, and growing profits. The investors then buy shares, expecting to earn a return as the company continues to grow. This traditional strategy has worked for smart individual investors as well as professional money managers.
But there’s a special breed of investors who take an entirely different approach.
This type of investor looks for companies where things are NOT going according to plan. Maybe there are problems with the company’s growth strategy, challenges in the industry, or management issues.
Activist investors love to identify these situations, and then jump headlong into the fray.
The idea is to buy a large number of shares of a challenged company. And then use those shares as leverage to convince the company’s board or management team to make big changes.
Sometimes these changes involve leadership shake-ups. Like the replacement of a CEO or the appointment of board members.
Sometimes these changes have more to do with a company’s corporate structure. An activist investor may lobby for the company to split up, to sell off specific divisions or assets, or even to …read more
Source:: Daily Reckoning feed
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