Why Has This Share Been On A Roller-Coaster Ride For The Past Two Months?

As seen from the chart below, the share in question has been on a scary roller coaster ride; it might even be mistaken as a volatile penny share with that kind of share price movement. However, what the chart’s showing is the share price history of STATS ChipPAC (SGX: S24) over the past two months.

The company, a global semiconductor tester and packager, is actually the fourth largest in its market and is majority owned by Temasek Holdings, Singapore’s sovereign wealth fund.

Source: Yahoo Finance

Takeover Target

In mid-May, the company had announced that it has been approached by multiple parties on the possibility of a takeover. The prospect of being privatised has helped lift the share price of the company in a short period of time from around S$0.335 in May to a recent peak of S$0.65 just last week as seen from the chart above.

Why it might be sold if talks are successful

STATS ChipPAC has been struggling to eke out any consistent profit in its highly-competitive market over the past few years. Although Temasek Holdigns owns around four-fifths of STATS ChipPAC, the fund’s investment in the company is very small in comparison to its whole portfolio; STATS ChipPAC has a current market capitalisation of around S$1.3 billion while Temasek manages more than S$200 billion in assets. With such a backdrop, it does make sense for Temasek to sell STATSChipPAC – especially when the corporate performance of the latter has been lacking of late – to concentrate on larger investments.

Talks breakdown

However, STATS ChipPAC announced last week that one party has dropped out of the privatisation talks. This has caused the company’s shares to plunge more than 10% in a single day. Such volatility highlights the risk of speculating on potential takeovers for a share. Investors who bought shares of STATS ChipPAC hoping to make a quick buck on any upcoming privatisation might not be too happy with the recent drop in the company’s share price.

Foolish Summary

Parties who are interested in taking over STATS ChipPAC are also in the business of making money. They have to believe that the company has better days ahead of itself or feel that they have the resources or ability to help the company turnaround its fortunes.

But whatever it is, the huge run-up in STATS ChipPAC’s share price over the past two months (an increase of around 80%!) has to make one wonder if there is still any value left in the company for individual investors; after all, prospective acquirers might well offer prices lower than what STATS ChipPAC is trading at now. That’s a possibility that individual investors shouldn’t dismiss.

Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.  

The Motley Fool’s purpose is to help the world invest, better. Like us on Facebook  to keep up-to-date with our latest news and articles.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.