It’s a rare exception that Cramer breaks this cardinal rule: Always sell a stock that’s underlying company has received a takeover bid. He has done it at least once, though, to success.
When Air Products back in February low-balled a bid for Airgas, the “Mad Money” host told viewers to hold on and he was right. After a significant amount of back and forth between the two companies, the original offer of $60 a share has jumped to $78 and Airgas has climbed to nearly $69 from $43.53, its price before the Air Products courtship. Now, with it looking like Air Products and Air Products alone will snatch up ARG, Cramer thinks it’s time to take profits.
Breaking the rules doesn’t always work out that well, though. Cramer offered the same advice when BHP Billiton tried to buy Potash, saying a higher bid would be coming so investors should keep their POT shares. But Wednesday night the Canadian government made only its second block of a foreign takeover since 1985 and brought BHP’s move to a halt. The news sunk POT $3.53 on Thursday to close at about $142, a point lower than the $143 it traded at following BHP’s initial offer. Granted, that number is a significant length up from POT’s pre-bid price of $112, but it’s still a decline from Wednesday’s close of $145.50. And in the end, investors would have been better off selling right away.
With this in mind, Cramer cautioned investors to take profits in a few other stocks that had also earned themselves a takeover bid.
Oracle tendered an offer for e-commerce software market Art Technology Group this week, taking ARTG shares up in the process. The stock is now 33 percent higher than Cramer’s original “buy” call on Art Tech on Jan. 29, he said, so investors should ring the register.
CommScope, maker of wireless infrastructure, will be taken private by the Carlyle Group for $31.50 a share. That’s a 37-percent premium since Cramer’s initial blessing back on June 22, 2009. Again, this is the time for investors to lock in their gains and cash out of CTV.
Even the rumor of a takeover can be a “sell” signal. Talk that IBM would buy Fortinet took that the latter up to $36.77 on Monday from $30, giving investors a chance a quick profits before Fortinet came out and denied the speculation. Now the stock’s back down at $30. Still, this one’s risen 145 percent from its IPO price of $12.50, so FTNT remains a winner. Just wait for a pullback to buy more.
“You got to follow the rules,” Cramer said. “Never hang on to a stock after it receives a takeover bid. Never.”
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