Merger and Acquisition Investing

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!