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Robinhood ($HOOD) shares soar on takeover hopes

Jul 12, 2022

Shares of Robinhood, the online discount brokerage jumped last week on reports that cryptocurrency exchange FTX is exploring a potential acquisition of the brokerage. FTX already owns a 7.6% stake that it bought for $648 million in May.

I believe there are two questions that need answering here. Firstly, why did the stock jump after rumors of an acquisition spread? Secondly, what would that mean for Robinhood?


Why did the stock jump?

When a company announces to buy a whole company (an acquisition), they tend to pay a premium price. Usually, that amount is above the current market value of the company. Meaning, if a company trades at $40, the acquirer would offer to buy all the shares for $50. Naturally, the market absorbs this information in seconds. Therefore, the rumor alone is enough for speculators to pump up the price. Of course, this all happens before the takeover is even confirmed or approved.


What would that mean for Robinhood?

The new owner would have the right to appoint a new CEO, directors and other management. This means the company’s business could move in a different direction. Perhaps the crypto exchange FTX would integrate it into their own business model and thus form strong synergies. Sometimes such things work out well and sometimes it is a big flop.


What about the stock price?

After the acquisition the company would no longer be publicly listed. Meaning, FTX would buy all the shares, become the sole owner and remove $HOOD from the stock market. You would be paid a fixed amount for every share, which would depend on the negotiations between FTX and Robinhood.


Latest updates?

The founder and CEO of FTX denied any takeover attempts via an email. He said that the company is not going for any active mergers and acquisitions with the trading app. As expected, Robinhood went back down and speculators were burned once again.


Do you think FTX should buy Robinhood?


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I am Vittorio Rigato, the Investing Coach behind Stoic Money.

I invested for more than 8 years, both for myself and by managing the 7-figures retirement account of my family.

After my¬†Master Degree in¬†Finance & Management,¬†I worked in the FinTech industry in Frankfurt (Germany) and managed financial products with value up to ‚ā¨100 Millions.

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