Let’s be real: the stock market is far from predictable. You never have a definite idea of how a certain stock will perform.
By simply investing in a stock, you’re hoping that it will do well and increase in value. There’s always the chance and the probability, however, that it will decrease in value for any number of reasons.
Recently, investors of one pharmaceutical stock got incredibly lucky after their investment grew by over 700% in a single day. Thanks to their risky bet, they’re now about to receive a sizable payout thanks to a proposed acquisition. For some of those investors, however, this major increase isn’t enough…and it could cost them a whole lot.
Tobira Therapeutics is a pharmaceutical company. They specialize in treating liver diseases, among other things.
Allergan PLC, an Irish pharmaceutical giant, announced on September 20th that it would acquire Tobira. In the proposed deal, Tobira shareholders will receive a cash payment $28.35 for each of their shares.
If Tobira performs exceptionally well as a company before their acquisition, and if they get past through certain hurdles — like the FDA — then they’ll pay up to $49.84 per share instead.
Upon hearing this news, investors got excited about the acquisition and the stock increased by 720.89% — or from $4.74 a share to $38.91 a share.
However, if Tobira doesn’t make it past the proposed hurdles, those shares worth $38.91 would be worth $28.35 when they’re fully acquired by Allergan.
Any investor spending over $28.35 per share is betting that Tobira will, in fact, get the extra bump in share value. If their buying shares of Tobira in large volumes, this could mean a major loss for their investment.
Time will tell if Allergan is getting Tobira at a discount, or if they have to pay the full $1.7 billion for the company. Also, the acquisition could fall through due to regulators disapproving of it, which would inevitably cause the price of Tobira to fall.
The biggest winners in all scenarios, however, are early Tobira investors who bought the stock at a low price. Their bets will pay off since their stock will be at least six times its original value. If only we were all so lucky.
Share this story with your friends below, and stop kicking yourself for not investing in Tobira!