I threw $100 into circuit city stock. Now - lets say it gets purchased by this guy Icahn - what happens then?

Question

So, yeah - $100, nothing much to risk. I'm a learning investor ...just started pretty much, have less than $2000 in the market. And I thought I'd take a gamble. My mom says It's a dumb idea - but I thought, CC is a profitable company, they have 42,000 employees, and I would shop there anyday over best buy (which I hate). Plus blockbuster dropped there bid.

So lets say, this guy - I think his name is Charles Icahn decides to buy (he's the largest investor) - the what happens to my shares? How does that all work?

Answer 1

If he (or someone else) were to make a cash offer for the whole company (which is not the case here) you would be offered cash in exchange for your stock.  In this case, Icahn is hoping to get the management to run the company better so it will be more profitable so the stock will be more valuable so the price will be higher and you would make money.  Sometimes he is successful with that strategy, sometimes not.

Answer 2

bad choice.

you had a better chance with big lot

Answer 3

basically 3 things can happen with stock when a company is being purchased

1. they only buy a majority share to run it the way they want and keep the stock intact

2. they issue you new stock in the new company sometimes more shares sometimes less that's based on purchase price and value of the companies

3. they send you a check which happens a lot in cases like yours because companies hate dealing with small lots (under 100 shares)

these all beat option 4 where the company goes bankrupt and you get nothing

there is more to it than this but you can get the idea

Answer 4

He isn't purchasing the company or your shares. He purchases shares just like you did albeit much more. Your shares are pretty much untouched unless of course his major buy helps to bring their stock around (which is his intentions) then you would stand to make some money

Answer 5

Icahn would best be described as an activist investor.  He finds companies that are undervalued and or underperforming, and he buys up shares and tries to turn it around.  He does not buy companies outright.  He is doing it right now with Yahoo.  He attempted it with Motorola (shares have dropped over 60% since he first got in).

Circuit City has a bunch of problems right now.  Best Buy is doing quite well and CC's products, tech-based, are almost the only products that are DECREASING in price during times of inflation.

Your purchase of the company because "You would shop there anyday" is probably one of the best reasons to buy stock in a company.  The shares are inexpensive here, and if you have a long time horizon and will sit on your shares, there is a chance that you will make some money.