The *one* buyout that wasn't profitable...

A little while back, it was announced that PWEI was being bought out by their rivals, J-M Manufacturing, for $33.50 per share. A number of MFI stocks have been bought out, IVII, KOSP, PLAY, KMG, for example, but others as well, and generally at healthy premiums. I actually bought PWEI at $34.11, so as one might imagine, I've been a little annoyed. The general consensus seems to be to sell, and, although I've been holding off, I think that is what I'm going to do.

At this point it's an arbitrage play, with very defined values. Current price hovers in the $33 - $33.10 range, so there's little upside. In fact, because the values are so well-defined, I can calculate my upside. Today's close was $33.10. So there's $0.40 upside, or about 1.2%. The deal is expected to close sometim in Q2. That's somewhere between 1 and 4 months from now; let's say an average of 2.5 months from now. That gives an average of 0.48% per month, or 5.8% annualized.

MFI is typically expected to best the market, and this is worse than the expected average returns of the market. Clearly, there's better potential by investing the money somewhere else. I'm going to do it - I'm just sorry I didn't do it sooner.

My own annoyance aside, I'm a little surprised that PWEI convinced Pirate Capital, the private equity firm that had been buying stock like crazy over the last little while, to vote in favor of the merger. Pirate will break even or lose money on all of the shares they bought from Oct. 13 to Jan. 8. Sure, a number of their earliest purchases were in the mid-twenties, but still, a lot of their purchases are in the low-to-mid-thirties. Now they're still buying shares, doing the arbitrage for the 6% annualized return, which I guess is a little better than 5% in a savings account, but still--!! I'm not sure whether there's something I'm not seeing, that's all.