Diamonds and Dogs
9/13/12FirstMerit Corporation (FMER)
FirstMerit was not ranking high with investors today, down 11.25% at $15.23. The bank holding company saw its shares plummet after releasing news that the company would purchase Citizens Republic Bancorp. The deal would be beneficial for FirstMerit as it would make for a larger footprint and builds its presence in parts of Ohio as well as Michigan and Wisconsin. So why is the stock crashing off of what appears to be a good deal? The answer is because that deal is a 100% stock deal. An all-stock deal can be problematic because if the acquirer's stock is undervalued, the currency being used for the acquisition gives the sellers more value than the deal price suggests. Furthermore, a stock deal is a sign that management believes the stock is either fairly priced or possibly overpriced. FirstMerit traded lower today even with a phenomenal day in the market.
Equinix Inc. (EQIX)
Equinix Inc. rallied quickly right from the opening bell today, up 7.48% at $200.50. The data service company saw its shares jump after news was released that the board of directors approved the transition to become a real estate investment trust. Equinix has been contemplating becoming a REIT for quite a while, and its stock has rallied on the possibility. REITs receive favorable tax status in exchange for paying out 90% or more of earnings to shareholders in the form of a dividend. According to Equinix, it plans to pay out $700 million to $1.1 billion annually in dividends, of which up to 20% will be in cash, and the remainder in stock. The company plans to file a letter to the IRS by the end of this year in the hope of being approved as a REIT by 2015. Equinix looked to set a new 52-week high today, but pulled back slightly heading into the close.