UNS Energy Corp (UNS) BOOM! Up 29%

Today Fortis announced an agreement to buy UNS Energy Corp (UNS) for $2.5 Billion. UNS is one of our original 50 best dividend growth stocks. The $60.25 per-share offer, which Fortis intends to pay in cash, is a 31% premium to UNS’s $45.84 closing price Wednesday. Congratulations if you choose to purchase UNS from our list for your portfolio!

This is one reason why we track and buy great companies; because other companies want to own them and will pay top dollar (think 31% premium) to acquire their business, assets and competitive advantages.

Here is today’s UNS yearly chart:

So the good news is you just hit a stock market jackpot! However, now you have a bit of problem, albeit a good problem. Do you sell your shares of UNS or do you hang on to them and let them convert to Fortis shares? You will still get the big 31% pop as shares covert over to Fortis shares at the equivalent UNS $60.25 per-share price. But then you will own Fortis which is a different business then UNS that you originally bought for its business, management, dividend policy, dividend payment history, yield, growth rate, competitive advantages, etc.

Personally this is one reason I sell a stock (along with a disruption to the dividend stream, or two consecutive years were the company does not raise the dividend payment).  Although Fortis will own UNS the former UNS will likely only be a small portion of Fortis, and have a smaller (usually proportionate, but not always) say in it’s business matters. Since it will be a different company than what I originally purchased I sell it, take the profit and look for an equal or better company at good value to replace it.

It’s possible Fortis could be a great company, but if I don’t know much about them or they’re not on my recommend best dividend growth stock list I sell it. Another reason to sell now is sometimes these deals fall through (and the price goes back down), it’s rare but it happens. Oh and yes that’s why UNS closed at $58.51 and not the $60.25 offer price, that difference is the margin of uncertainly that the deal will not go through. In fact, one of the reason Fortis offered 31% above the current price is to win over the existing UNS shareholders to approve it, and thwart off getting into a bidding war with another company. But I have seen even good offers like this fall though, governmental regulations, anti-trust issues and so on. If the deal goes south, so will the stock price likely returning to the pre-offer price. Oh yes I’ve seen the price run up on a bidding war too, but to me waiting on that is trading and I pride myself on being a long-term income investor, who prefers to sleep well at night.

Oh and here’s the short-term hit that Fortis took today because they are paying a premium for UNS.

I hope this has been helpful. Naturally I will be removing UNS from our recommended list once it disappears into acquisition land.

All the best!

Filed in: Dividend Growth Investing