A dealmaker source says investors are kidding themselves if they think that there’s going to be a bidding war for AOL.
On Monday, AOL announced that it would sell itself to Verizon Communications for $US4.4 billion, or approximately $US50 per share.
AOL’s shares have been trading above the $US50 bid causing some investors to speculate that another bidder might step in.
That’s likely not the case, according to a source in the dealmaking community.
The source explained that the north of $US50 share price could be the arbitrage community out there saying, “There’s got to be someone out there. Someone should be able to pay more than that.”
There’s a problem with that, though. It’s well-known that AOL has been for sale for a long time. Therefore, it’s unlikely that there would be anyone out there that would pay more. It doesn’t mean that it couldn’t happen, but it doesn’t look likely.
It’s also not unusual for the stock price to rise above the bid price. The reason why that can happen is that people didn’t know the company was prepared to sell itself. They think, “Really? That’s cheap. Let’s try to top it.”
Again, though, AOL has been for sale for ages. The stock even had activist investor Jeff Smith of Starboard Value pushing for an AOL/Yahoo! deal last fall. Starboard has since reduced its stake in AOL, according to securities filings.
“Often times in situations like this, the arbitrage community gets ahead of itself. My guess is that’s probably the case.”
“I can’t believe someone is going to go, ‘Oh geez, didn’t know it was for sale.'”