The market witnessed a muted post-holiday trading session yesterday in the broad S&P 500 Index, which settled at 2,002.28 – down just 1.09 from last Friday’s close.
But that doesn’t mean there weren’t any big movers in yesterday’s market action.
XRS Corporation (XRSC) rocketed up more than 82.7% on news that the company is being acquired by privately held Omnitracs, LLC for $178 million – or $5.62 per share.
The chart below shows the two-year price action of the stock, including yesterday’s closing price of $5.52 per share. The stock is now at levels it hasn’t seen in 10 years.
Once news of the Omnitracs’ acquisition hit the news wires at 8 AM, interest in the deal drew significant attention to XRS’ stock.
The stock ended the day with more than 1.3 million shares changing hands, well above its daily average of just under 50,000 shares on a typical day.
XRS Corporation provides software solutions that help trucking companies manage their fleets, comply with regulations, and reduce operating costs.
The company led the trucking industry’s migration to mobile devices in collecting and analyzing compliance and management data in the United States and Canada, which makes the purchase a perfect fit for Omnitracs, LLC.
Omnitracs pioneered the telematics industry more than 25 years ago as a business unit of Qualcomm (QCOM).
But the deal isn’t without controversy…
Before the ink outlining the acquisition was dry, regulators and law firms representing investors cried foul!
The national shareholders’ rights legal firm, Levi & Korsinsky, announced their intention to investigate the Board of Directors of XRS Corporation for alleged breach of fiduciary duty and other violations of state law in connection with the sale of the company to Omnitracs.
The investigation is centered on the failure of the board to shop the company adequately to other interested parties before agreeing to the transaction with Omnitracs.
This failure to court other interest implies that XRSC management failed in its responsibility to obtain the best possible value for shareholders before entering into an agreement with Omnitracs, which some believe is underpaying for the company’s shares.
Additionally, shareholders representing 68.1% of the voting power of the company’s capital stock have already agreed to tender their stock, leading Levi & Korsinsky to believe the deal was struck long before yesterday’s announcement.
And it’s these legal challenges to the deal that make this stock poisonous to any investors who might consider opening a position in XRS Corporation.
You see, with the deal capped at $5.62 per share, there’s no upside potential for new investors, while the potential for a prolonged legal and regulatory action will only serve to drive the stock price down over time.
So before jumping on the profit train surrounding this acquisition, understand that some deals are nothing more than train wrecks to be avoided at all costs.
This deal has already jumped the tracks and has nowhere to go but down.