With stock exchanges closed and trading halted, Hurricane Sandy has brought much of the East Coast’s financial activity to a standstill. Yet deals that had been in the works in the days leading up to the storm are still being announced — like this morning’s news that publishing houses Random House and Penguin will merge. Also announced today: Riverbed Technology Inc.’s $1 billion acquisition of Opnet Technologies Inc.
What happens when deals are announced into a trading void? Investors have more time to process news, instead of making instant judgments. “The first kneejerk reaction on most acquisitions, particularly large acquisitions, is to whack the stock of the acquirer,” says Needham & Co. analyst Alexander Henderson, who covers Riverbed.
“I think actually this probably helpful to Riverbed,” says Henderson, of the acquisition’s timing. “This is a really good acquisition for them, particularly to the extent that they’re using cash to execute it. It fits superbly with what they’re already doing. In many respects, I think having a little bit of time to digest it may be really helpful for Riverbed shareholders.”
Michael Genovese, an analyst with MKM Partners, says that the share price will work out the same over time. Riverbed’s stock “would be way down today” if trading was normal, he wrote in an email. “It’s very expensive and they are wrecking their balance sheet, but I think it will be down just as much Wednesday [or] whenever the market opens post-apocalypse.”
Penguin is owned by the United Kingdom’s Pearson, and Random House is a division of Bertelsmann, a private German multinational. Their merger came after some late interest in Penguin by News Corp., which is traded on NASDAQ. That exchange will remain closed through Tuesday, possibly blunting any impact of the unrequited bid activity.
Then there are the deals that are so small that the timing of the announcement does not matter. Mohawk Industries, a flooring company, said this morning it would buy a Switzerland-based maker of laminated flooring products for an undisclosed sum. Hurricane Sandy’s trading holiday will likely have no effect on that one, says John Baugh, an analyst with Stifel Nicolaus & Co. “There’s very litle financial information given in the press release,” says Baugh. “And investors will struggle to get much financial information elsewhere, whether you have 24 or 48 hours with which to digest it.”
Hear that, investors? Ride out this storm with your Neflix account, not a stack of financial reports.
