I poked at Post Holdings recently, particularly if there are investors out there owning the shares for the exclusive purpose of securing a buyout premium with the hopes that Kellogg, General Mills, Kraft, or Nestle wants it and pays 30% above the prevailing market price to get it. The reason I don’t like it is because the default/status quo option is that the business will continue to operate as a standalone entity and will eventually return to fair value which will be an unpleasant experience for shareholders that have to deal with high debt and a 30x earnings valuation for a billion-dollar revenue business.
This does not mean that I am against having an expected buyout be a part of a thesis for making an investment. Instead, it is my view that the antecedent conditions of desirable valuation and growth exist independently of the buyout.
I’ll give you an example. … Read the rest of this article!