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The BCE lesson: Get out early Add to ...

Holding onto a stock throughout a takeover attempt has not been a rewarding strategy this year. In the case of both Yahoo Inc. and BCE Inc., investors who held on saw a rise in the early stages of takeover talk, as enthusiasm kicked in and greed for a higher bid took hold.

But in both cases, the stocks have subsequently fallen as the respective deals either fell apart or were derailed. Of course, two examples does not make a trend - though it could be the start of something, as mergers and acquisitions activity looks less certain this year and volatile credit markets make financing M&A deals more difficult.

From now on, investors might be less likely to stick with a stock that is in the sites of an acquirer, meaning that it is less likely that a stock will rise above its takeover price because investors will get out early when the going is good.

BCE shares are down more than 20 per cent from last summer's peak, when its $35-billion takeover deal with private equity groups was arranged after months of chatter. Sure, investors received a decent dividend since then, but not enough to make up for the collapse of the shares last week after a Quebec court sided with bondholders in their dispute.

Similarly, Yahoo shares surged more than 50 per cent after Microsoft Corp. made a move for the Internet company. The shares then sagged 18 per cent after the prospects for a successful deal dwindled and Microsoft finally walked away.


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