When it comes to mergers and acquisitions, it is common for the acquirer to have weakness in its share price, and for the company being targeted to see an increase in share price.
The primary reason for the acquirer to decline is that it often pays a premium for the target company or may incur debt to finance the acquisition. The steeper the premium paid, the more harsh of a reaction from investors.
On many occasions, when the potential deal is called off, the acquirer will sharply rebound and recover most of the previous decline in price. That isn't the case with PayPayl Holdings Inc. (NASDAQ:PYPL), which is the PreMarket Prep Stock of the Day.
PayPal's Pre-Deal Price: Shares of Paypal have been under selling pressure since it peaked in July at $310.16. It has suffered as investors have been less enamored with high price/earnings technology growth stocks and have rotated in other sectors.
The issue had made a new four-month low on Oct. 4 at $251.59 and appeared to be rebounding when it ended the Oct. 19 session at $271.70.
Not So Fast: The day following the high close for the rebound (Oct. 20), the issue dropped a bomb on investors in the issue. The bomb: PayPal having preliminary discussions to acquire Pinterest Inc. (NYSE:PINS) for $70/share. That was a considerable premium to the previous day’s close of $55.88, which even at that price was considered “expensive” to fundamental investors.
Investors showed their strong disapproval of the potential transaction and the issue made a new low for the move ($238.75) and shed $31.30 or 11.5% to end last week at $240.40.
No Deal, But Relief Rally Stalls: Over the weekend, PayPal announced it was not pursuing the deal with the caveat of “at this time.” Shares of the issue sharply rebounded in Monday’s premarket trading and for the early part of Monday’s session.
PayPal came nowhere near the $270 area where it was trading before its potential purchase of Snap. In fact, the issue peaked just off the open at $255.52 and relinquished most of the overnight gains, only closing higher by $6.48 or 2.7% at $246.88.
PreMarket Prep's Take: While some investors are puzzled by investors’ negative reactions, even with the deal being called off, the hosts of PreMarket Prep aren not. When it was being discussed on Tuesday’s show, co-host Dennis Dick shared his view on the recent price action.
“The Street is calling their bluff with 'at this time' wording," Dick said. "Obviously, they think they are going to acquire somebody and probably overpay. Clearly, the Street is not in favor of the company making any deals.”
PYPL Price Action: Once again, the issue peaked right off a higher open Tuesday, when was it was in green by $3 at $249.88, and continued to make new lows for the session. As of 12:40 p.m., $241.15 stands as the low for the day and is attempting to rebound.
The issue was down 1.66% at $242.79 late in the session.
Beneath the low for the day, there's the low from Friday and of the recent slide at $239.75. The next daily low for the issue would be its May 19 low of $235.11
Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.
On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.