One word to describe this pick: merger
but you might wonder what the terms of the merger is, and if it is indeed a merger, in which case the market would see, like i do, that this stock has as of now a 31% premium coming, then why is it's stock where it is?
the answer is simple. this is a merger, and as such, is subject to the same predictable behavior as all other merger companies. the stock, whose deal will close in more than 2 months, does not have the demand right now because the market is waiting to see how things play out. That fact is constant in every merger, the most recent example being XMSR's merger with sirius, which only started to move on monday, when the deal is closing later this month. that is good news for us smaller investors. we have the flexibility to invest for two months and take our payout. the big players do not. they are active, they are patterned and they are compulsive.
Lets talk Specifics--why should we invest?
the most useful signs to look at in a merger such as this is the institutional ownership. If insiders and institutions are buying before a merger it is a solid indication that not only do the insiders and institutions believe in the deal, they believe in the company which will emerge as a result of the merger. For CLF, the company buying ANR, in the last 3 months, there have been 42 insider trades, with 34 of those being purchases. in all, 4.25 million shares have been bought by insiders alone. A great indication.
Secondly, both companies have more than 90% institutional ownership, which makes the deal VERY likely if not guarunteed to go through. after all, it is these very people who have voiced approval, if not arranged for the deal to take place. this fact takes almost all of the risk off the table.
Fine--We get it--Good indications. So what are the deals Terms?!
The deal's terms are that every holder of ANR will recieve .95 shares of a CLF share, as well as 22.23 dollars in cash.
note the First part of that sentence. the .95 shares. that is one reason that the price will not move significantly higher until closer to the deal. the market wants to see where CLF will end up. but We do not have to do that. if we look at CLF as a company, we can see that they have recently been on a buying spree, merging with numerous companies, and experiencing incredible growth. not only is this a good business strategy, but this is great for long term growth.
Now note the latter part of the opening sentence, the 22.23 per share. That is, for investors, like a failsafe. as of now, CLF would have to fall over 30% for this deal to be somewhat unprofitable. that is highly unlikely considering their historical prices, their technical indications, and most of all, their industry. CLF is a mining company. a producer of Iron Ore and Owner of many Coal Mines. this is not only considered an in-demand commodity, it is considered a kind of haven for those fleeing a bear market. CLF, which is now growing by aquiring ANR, will only be in a more dominant market position. surely a place to invest in considering the market's current conditions.
Fine. im almost sold--now what is the current premium?
if you were to invest right now, You would end up with a 31.6% premium. Not a bad return over 2 months, eh?
$90.74 (07/22/08)
