Lessons from the Past

I posted the following in January. This was in response to an email I received from a reader. I went back to find this because today I stumbled upon the quote for SSY and saw that it was trading at $8.60. Be sure to pay attention to the lesson here, I may be on to something with it...

General Rule
I received an email from someone the other day asking about a company called Sunlink Health (SSY). Its a small thinly traded hospital company that not long ago received an offer at $11 per share. The emailer was concerned that the offer was too low and that management has hired a bank to "explore alternatives". According to his due diligence (he seemed well informed) he pegged the value of the company at around $15 per share. If this is in fact the case he and any other investors would have a big hit on their hands and I commend them for holding on and doing the work to maximize their investment.I on the other hand looked at this situation for a grand total of 5 minutes and I run the risk of being very wrong here but here are my two cents. I never looked at the specifics of this situation as I have a very general rule regarding acquisitions. I am not an arbitrager. I don't try to make the spread between the current price and the offer price even in this case in which the investor perceives the value being much higher. When I am holding a company that is going to be acquired I will sell it and move on. I feel like often times I do not have the advantage over the people who are doing the bidding and they may value the company correctly. Furthermore, if the market perceives a disconnect between the bid and the value, the stock will often trade higher than the bid. This is not the case in SSY's case. The stock is currently at around 10.17. This does not give me any confidence in holding my position as there are often far smarter individuals out there trading in stocks than I, and often times no matter how right I think I am the stock will go the other way. Another important factor with this stock is that it is so illiquid if you have a large position the euphoria surrounding an acquisition often provides an optimal time to exit a position without sacrificing too much on the bid ask. Im sorry I can be of more help on this issue for I would have done it far different; however I must say that individuals will do far better research than anyone working on Wall-St. and if you have done your due diligence stick with it for you will be rewarded in the end.

General Rule: Unless you run an arbitrage fund sell your stocks when an acquisition is announced. Do not wait for the transaction to complete, far too much can go wrong in the meantime that can cause you to lose out (Ie Guidant (GDT)). Plus the return you will garner from holding on is often times trumped by better opportunities in the market.