Whitewave (WWAV) Gone B.I.G.

How do we know a good offer for a stock that we own? Today, Bespoke Investment Group rightfully celebrates the acquisition of their largest holding (WWAV) at a higher price.

Whitewave Foods (WWAV)

“A quick update on our model portfolio: WhiteWave Foods (WWAV), which is our largest holding, received an offer yesterday from Danone to be acquired at $56.40/share.” — Bespoke Investment Group

You know the words.

In today’s news, Company B was bought out at a lavish premium by Company A.

That “premium” is often uninformative — and can be misleading. (Yes, Virginia, that was sugar coating)

The premium is almost always a price comparison to the price of the previous day. Yesterday’s price may or may not be fully “representative” of the value of the company. We look to the return forecast, before and after — and Whitewave via Bespoke provides a pretty good example.

The most recent Value Line report (4/22/2016) on WWAV displayed a return forecast of approximately 8% with a stock price in the high 30s. The $56 offer takes the return forecast closer to zero — a condition that generally suggests a “fair offer” for the company. In some cases, like tech sector stocks, most buyouts happen at -5% to -10% with expectations of synergies, optimization … you know the drill.

So when you hear the news, think what’s PAR on this deal?