Why SFX Entertainment Inc. Stock Skyrocketed Today

Story image for todays news on stock from New York Times


Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on big changes — just in case they’re material to our investing thesis.

What: Shares of SFX Entertainment (NASDAQ: SFXE  ) were up 22.3% as of 11:30 a.m. Tuesday after the company announced it has agreed to be acquired.

So what: Specifically, SFX says is has signed a definitive merger agreement with an affiliate of Robert F.X. Sillerman, the company’s chairman and CEO, for $5.25 per share in cash. Shares closed Friday at $4.12. For perspective, Sillerman currently owns around 37.4% of all outstanding SFX Entertainment shares, and in February proposed a going-private transaction through which he would acquire all shares he didn’t already own for $4.75 in cash. As it stands, today’s acquisition price values SFX at roughly $774 million, and represents a 42% premium over SFX’s closing price of $3.70 per share when the initial going-private proposition was announced.

Now what: Alternatively, according to today’s press release, investors will also be able to elect to retain stock in the company in lieu of the cash offer “subject to certain conditions and limitations.” In addition, the merger agreement allows for a “go-shop” period of 45 days, during which the company will actively solicit any superior proposals from other potential acquirers. Sillerman, for his part, has agreed to vote his shares in favor of any such proposals that place a value on the company of at least 2.5% more than his highest offer.

With shares of SFX currently trading around $5.00 apiece, this also means there could be additional upside of roughly 5% to 8% for SFX investors willing to wait for the merger to come to fruition. That said, given the relatively limited size of those potential gains, and if I were an SFX investor now, I would have no problem taking the bulk of today’s quick profits off the table to put them to work elsewhere.

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