A Ray of Sunlight: Community Bankshares (SCB)

Amid today’s somber events– a jump in oil prices, further downgrades in the financial sector, GM hitting a 53 year low, and the S&P breaking the 1300 support level*–there was one bright spot that seems to have gone by relatively unnoticed: That is the announcement that First Citizens Bank will merge with Community Bankshares. Why am I making a big deal out of it? For one reason: It can make you and me money.

The terms of the deal, approved by both boards, is for shareholders of SCB to receive $21 in cash for each share of common stock. At this moment, SCB is trading at $19/share, and the $2 premium represents a 10.5% return. Now the deal faces the usual regulatory hurdles and is subject shareholder approval but nowhere in any of the press releases was anyone quoted as being skeptical that the deal won’t go through. Company principals expect the deal to close sometime in the fourth quarter which is also good news since SCB shareholders will receive at least two dividend checks. Currently, the dividend is $0.12/share so that adding in two dividend periods will increase the six-month (or so) return to 11.8% (about 24% annually) and three dividend periods will increase the six-month return to 12.4%. Now I know this isn’t exactly a “wow!” type of return, but it is about as risk-free as you can get on a pure stock play.**

That’s my tip on this cloudy day in the market. If you look hard enough, there’s always a silver lining somewhere.

*CNBC claims that 1300 is a key support level for the S&P 500 but if you look at the chart you’ll see that 1275 is the real key level, and unfortunately it appears that it’ll be tested very soon.

**Check out my April 29th and 30th blogs for more details including returns and draw-downs on post takeover announcement plays.

Disclosure: I added SCB earlier today to my personal portfolio at a price of $18.85.

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