Update: The Pantry Is Looking For A Ceiling-High Buyout

| About: The Pantry, (PTRY)
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Summary

An article in the WSJ says PTRY is undergoing a buyout with bids due last week.

The development raises my confidence in PTRY being undervalued prior to the news, obviously, but with the price appreciation I am on the sidelines.

I didn't anticipate a buyout this soon which may be formally announced literally any minute.

According to an article in the Wall Street Journal based on "people familiar with the matter," The Pantry (NASDAQ:PTRY) has been put up for buyout auction style. Apparently, the bids were due last week so the official announcement could come literally any minute or, according to the Journal, "within days." The Journal also figures the buyout could fetch over $850 million compared to the current market cap of around $820 million.

That doesn't leave a lot of premium on the table, the buyout could fall through, or the Journal could be simply wrong about what a buyer will ultimately pay. Fair value is one thing - who wants to pay fair value? It could conceivably only fetch a discount. Furthermore, the buyout could be made in whole or in part with the stock of another public company, potentially one whose shares are overvalued. I'd even speculate that a company that knows its shares are overvalued would be more tempted to use overvalued shares to outbid and win the auction. For all these reasons, I am out of PTRY and staying on the sidelines at least for now.

In my previous PTRY article entitled The Pantry: Consumers Are Pumping Their Gas Savings Into Merchandise I made a case that shares are undervalued in part, among other things, cheap retail gas prices is a boon for companies like PTRY as that tends to lead to higher merchandise and fresh food purchases which carry significantly higher profit margins than gas. When I wrote the article, the stock price was $28.86. I still believe it is undervalued at that price, but with shares up 22% less than a week later and the risks cited in this article I can no longer recommend shares.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.