Question Have a hundred or so shares of Varian, Inc. stock and just found out they're being bought out by Agilent. I see it's $up for the moment. I think it's the death knell for Varian, Inc. eventually. Agilent is a much bigger player. So I'm wondering:
1. If I should sell now since the price is up, and reinvest somewhere else?
2. What happens to my Varian stock if I DON'T sell? Converted to less valuable Agilent stock?
Thanks for any advice as I'm a very small fish in this pond and have no real idea what goes on in a situation like this. And found it odd that I couldn't find out what was going to happen with the stock from the Varian website but I see very little detail regarding this acquisition on their website. So I really appreciate anything you can explain about this.
Answer Hi Steve-
Thanks for your question, this is a good topic - if you own stocks long enough eventually you have one that's taken out.
I don't follow Varian but based on the news reports this is an all-cash deal at $52/share, rather than a stock-for-stock merger. If completed that way, on the closing date of the acquisition, you will see your 100 shares exchanged out of your account, and you'll receive $5200. Some brokerage firms tack on a nominal transaction fee for this kind of thing (which I find annoying), you'd have to check that.
If the acquisition is a done deal you really don't have any control over that, Varian will no longer exist as an independent company or security. The current price for Varian is about $51 which means "the market" thinks this deal will go through, and relatively quickly. When there is a lot of uncertainty you typically see a bigger gap between the buyout price and the current share price. Some examples of uncertainty are when the acquirer might not be able to obtain financing or shareholder approval for the deal, or when the deal might be opposed by regulators (e.g. antitrust issues in the US or EU, or certain bank combinations that need regulatory review). As an aside: "merger arbitrage" is a trading strategy where people try to game those kinds of gaps and make money, based on a guess about whether the deal will/will not go through.
Anyway - the one announcement I skimmed said the deal is expected to close in 2009. Perhaps they already set the date, I didn't dig too deep (check on that). That's soon so you might not have reasons to sell before it's automatically cashed out. Here are some reasons to sell, before an all-cash merger goes through (generally, not specific to Varian):
1. you don't think the merger will happen and want to at least get the gains so far
2. you think the merger will happen "next year" and it's a taxable account, and you want the capital gain to happen on this year's tax return for whatever reason
3. you want the cash immediately, either to spend, pay debts, or buy a more promising investment.
4. the current price is so close to the cashout price you see little reason to wait
Reasons not to sell:
1. you have nothing else to do with the cash
2. the spread (current gap between buyout price and share price) is more than you'd earn elsewhere
3. desire to shift the gain to a later tax year (e.g. if the deal closes in 2010 - this reason may not apply, you'd have to keep an eye on that).
4. (for all of the above)...and you're certain the deal will go through
Hope that's helpful and congrats on owning a "target" in an acquisition, that usually means you've made some money.
