When you own stock in a company that is being acquired, how do you know wether to sell the shares or let them be converted?

October 3, 2005 3:18 PM

When you own stock in a company that is being acquired, how do you know wether to sell the shares or let them be converted?

Are there any general rules that should be followed in this type of scenario?

/newbie investor

posted by quadog to work & money (4 comments total)

there's no rules really.
posted by alkupe at 3:24 PM on October 3, 2005

One consideration is whether you want to (or need to) pay taxes on a gain in value. If you sell the shares, you'll owe taxes (assuming a gain, unless you have offsetting losses). If you let them be converted, no taxes would be owed.

Another basic question is whether you like having stock in the acquiring company. If, for example, you owned (say) Providian stock, and you don't think much of the prospects of the acquiring company (Washington Mutual, in this case), then it's probably best to sell out and take any tax hit. If you're happy with having stock in the acquiring company, that's an argument for letting things ride.

And no, it typically doesn't matter if you sell your stock before the acquisition takes effect, or sell the stock you get upon the conversion [once it's clear that the deal is definitely going to happen].
posted by WestCoaster at 4:36 PM on October 3, 2005

IANA Broker/stock trader/adviser, however, I do own the game Acquire. (ha,ha) I am also an investor, fairly new and moderately conservative financially.

Approach it like you were buying any other new stock. Do you think this new company will succeed? Do you think your investment will grow in value? Is it worth the money you're going to put in it?

For what reasons did you buy/come to own stock in the first company? Are those traits still present in the second, presumably bigger company? If you never sold the stock of the first company, was it because it continued to increase in value, or because you've just never gotten around to selling it? If you wouldn't buy it today, and you aren't that impressed with the new company, it's probably not a good idea to keep it.

On preview: what WestCoaster said. In addition, I believe you don't have to sell all of it or convert all of it, you can do portions of each.
posted by sarahnade at 4:46 PM on October 3, 2005

Thanks guys. You have confirmed what my intuition was attempting to tell me.
posted by quadog at 8:38 PM on October 3, 2005