Blog : Buyouts and Takeovers

by Peter Leeds on July 27th, 2012

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One of our penny stock picks has jumped up in price by over 25% today, due to an unsolicited takeover offer. Buyouts are common in penny stocks, mainly because the penny stocks themselves are generally by their nature smaller companies, which are therefore "easier to digest" to bigger stocks.

So, I thought it may be helpful if to discuss what is happening with a takeover, and why it can instantly drive the price of the penny stock higher.  Subscribers to Peter Leeds Penny Stocks will often read comments we make about specific penny stocks potentially being a takeover target or candidate.

This type of event (buyouts, takeovers, and consolidation) is something that we recently mentioned would start to happen in the mining exploration and production sectors, because the penny stocks in these areas are so highly undervalued.  It has gotten to the point where it is much cheaper for bigger stocks to buy an entire precious metals production company, than it is to explore for new finds.  Why spend $20 million on exploration when they could purchase an entire silver, gold, or uranium penny stock company with tons of production and land claims with proven reserves for a fraction of the price.

Let's use our penny stock as an example of what happens is a takeover.  Our penny stock pick has recieved an unsolicited takeover (buyout) offer from another mining company.  This drove share prices of our penny stock pick up dramatically.  This is something we alluded to for a lot of the mining industry - that at these ridiculous valuations, larger mining stocks will start scooping up some of these smaller penny stocks.

The purchase price may go higher, if the management and majority shareholders of our penny stock pick do not think the offer is good enough, and therefore decide to resist it.  However, our penny stock pick may believe the offer to be good, and may go along with it at the current price offer.

If the transaction does go through (at whatever price), shareholders will have the stock in their brokerage account switched out for the appropriate amount of cash.

Besides the production that our penny stock has, the larger stock doing the buying will also be interested in acquiring senior management, the workers, the land claims, permits, and logistics networks that our penny stock pick has in place.

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