Why Did My Stock Just Die?
CAPS Rating(out of 5)
|Temple-Inland (NYS: TIN)|
|RealPage (NYS: RP)|
|PMI Group (NYS: PMI)|
The market soared 322 points yesterday, or 3%, so stocks that went in the other direction by even larger percentages are pretty big deals.
The devil's in the details
Unless you're Ken Lewis buying Countrywide Financial for Bank of America, the last thing you want to find out when buying a company is that it's the target of a lawsuit with billions in potential liabilities. Temple-Inland investors just realized that as their paper packaging company got hit with a $1 billion lawsuit because it was "fraudulently looting" failed financial institution Guaranty Bank. The lawsuit jeopardizes the takeover bid International Paper (NYS: IP) has been planning.
The trustee overseeing the bankruptcy proceedings of Guaranty charge that Temple-Inland contributed to the bank's demise by operating it like a "captive finance arm" to boost its building materials division rather than as a regular bank. It collapsed after mortgage-backed securities were piled on it and the market for them crashed. The FDIC seized the bank and sold off its core banking unit to Banco Bilbao Vizcaya Argentaria (NYS: BBVA) .
International Paper offered to buy Temple-Inland for $3.3 billion, or $30.60 a share. T-I's management rejected the offer and adopted a poison pill plan to thwart the effort, only one of the unfriendly shareholder initiatives it has in place. Another is a staggered board of directors that would require potential suitors to wait years before being able to replace recalcitrant directors.
But arbitrageurs were expecting IP to up its offer to soften hardened hearts as T-I's shares were recently trading above the offer price. All that is now in jeopardy, although T-I has been warning the potential for such action exists.
Beginning with its annual report and through each successive quarterly report thereafter, management's language concerning potential lawsuits has grown more expansive. That it finally happened can't be a surprise for those who cared to look, and also it can't be said IP didn't have knowledge of the possibility this was a possibility. So the worries about it backing out of the deal may be a bit overdone.
With 90% of the 274 CAPS members rating the paper packaging specialist to outperform the broad market averages, it's seems they think it will do well for itself regardless of whether International Paper follows through. You can tell us on the Temple-Inland CAPS page whether it will be able to find its way out of this morass.
Off the market
Another acquisition-related announcement sent shares of property management software outfit RealPage plummeting. On the surface its acquisition of Internet listing service Multifamily Technology Solutions is a natural fit with its own business, but it might be that RealPage has been on a bit of a buying spree that has investors worried.
At the end of last month it purchase SeniorLiving.Net, an Internet lead generation and placement network for the senior housing market, and in May it bought Compliance Depot. In 2010 it bought three more companies. The rental markets may be hot -- according to Reis, the rental vacancy rate is at its lowest level since 2003 and still falling with now end in sight -- but this unprofitable company may be taking on more than it can handle. It's also engaged in a lawsuit with Yardi Systems that saw RealPage's counterclaims thrown out while Yardi's allegations of unauthorized access to internal systems and use of copyrighted data proceed.
While CAPS All-Stars are evenly split on RealPage's ability to beat the market averages, just 40% of the broader community thinks it's possible. Add RealPage to the Fools' new My Watchlist feature, which lets you get up-to-date news and analysis as it unfolds.
One foot in the grave
When shares of mortgage insurers MGIC Investment (NYS: MTG) and Radian Group (NYS: RDN) were falling earlier this month, the stock of rival PMI Group was inexplicably shooting higher. I noted at the time that with its ability to write policies blocked in several states and more likely to follow, the stock action was more akin to it being in its death throes than it resembling a revival.
The undertaker's dug out another shovel full of dirt from PMI's grave as Arizona joined the growing list of states prohibiting it from doing business there. It's also facing a delisting of its stock from the New York Stock Exchange if it can't get it trading above $1.00 a share for 30 consecutive days. Companies in this situation often resort to a reverse stock split to artificially inflate the price of the stock even though the underlying value remains unchanged. In PMI's case, with a decreasing ability to write policies, that value is looking more and more negligible.
Just over half the All-Stars rating PMI think it can pull out of this tailspin. Tell us on the PMI Group CAPS page whether you think its end is assured.
Ready for a resurrection
Just because your stock has taken a beating doesn't mean it's going to roll over and die. Markets are known for overreacting. A closer look on Motley Fool CAPS at what's happened to your stock can give you an edge over other investors who just react to the market's lead. You can decide for yourself whether it's ready to come back from the dead.
At the time this article was published The Motley Fool owns shares of Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in the article. You can see his holdings here.
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