Is it good news or bad news (for the stock price) that a company is considering the sale of itself?

Question

Hey, im not very experienced with stocks and what not but im thinking about getting this stock and im not sure whether this article should turn me away from this stock or if I should get it

http://www.newswire.ca/en/releases/archive/July2008/23/c6805.html

Any help is appreciated, thanks!

Answer 1

Well the company thinks it's worth more than the current stock price, and that somebody buying the company would pay a premium to the current price.

But the company appears to be distressed, so in that case the price might even be lower than the current stock price, as happened recently with Bear Sterns.

I don't know enough about the company to say what a buyer would be willing to pay, assuming a buyer could be found. More research is needed.

The simple fact that they are trying to find a buyer doesn't really tell you anything by itself.

Answer 2

I think the 2nd and 3rd paragraphs say it all.  

....received notice of an event of default in connection with the financial covenants in the loan agreement with its senior secured lender.....Discussions are ongoing with the senior secured lender through the Special Committee and its financial advisor RBC Capital Markets. ...In the event this immediate sales process does not achieve an acceptable price, the Company intends to recapitalize the balance sheet to improve liquidity and permit delivery of the business plan.

I interpet every bit of that as they are out of money, they have defaulted on their loans and are looking to borrow more money.  None are good signs.  Usually when a company starts to advertise that they need to be bought out then nobody is interested.  If this was just a matter of a short term cash crunch on an undervalued company, then they wouldn't have a problem getting a loan, renegotiating the current loan or attracting new investors.

Personally, I'd avoid this one or just monitor it for a while until I saw some of the problems clearing up.