Ask the Fool: Hostile takeovers and shrinkage
Q. What’s a hostile takeover? — T.S., Jackson, Michigan
A. When one company buys or merges with another, it’s typically by agreement, with the businesses sharing information and planning jointly. A hostile takeover is when a company (let’s call an example Oak Corp.) buys another (call it PineCo) against its will.
Here’s how that might happen: Oak sees value in PineCo and wants to buy it. (Companies whose share prices have fallen can be particularly vulnerable to being bought out.) Oak makes an offer to purchase or merge. If PineCo’s management likes the idea, it will advise shareholders to approve it. An acquirer typically pays shareholders in cash and/or shares of itself or the new merged company, sometimes even paying a premium above the target company’s current price.
However, if PineCo’s management rejects the proposal, Oak could issue a “tender offer” to buy shares from PineCo shareholders at a premium until it has enough shares to wield control. Oak might also set up a “proxy fight,” urging shareholders of PineCo to vote out members of their board of directors and replace them with management more sympathetic to Oak’s offer.
Recent unsolicited offers to buy companies include Elon Musk’s pursuit of Twitter and Paramount Skydance’s likely purchase of Warner Bros. Discovery. Past hostile takeovers have included Belgian-Brazilian beverage company InBev acquiring American beer brewer Anheuser-Busch and Kraft Foods buying Cadbury.
Q. What’s “shrinkage”? — M.P., Riverside, California
A. It’s a term commonly used in the retail world to refer to the loss of inventory. Some shrinkage is common and expected — such as that due to accidental breakage, administrative errors, fraudulent returns, shoplifting or even employee theft. The national average shrinkage rate is typically below 2%.
Fool’s school: Smart 401(k) moves and mistakes
Most of us would do well to participate in 401(k) plans that our employers offer. But there are some smart and not-so-smart moves to make regarding 401(k)s. For instance:
- Many employers will chip in matching funds to your account, so contribute at least enough to your plan to grab all available matching dollars. If your company matches 50% of your contributions up to 6% of your salary, be sure to qualify for the maximum match — that’s free money.
- It’s often good to contribute much more to your account, though. For 2026, the maximum 401(k) contribution is $24,500. Those aged 50 and older can make an extra $8,000 “catch-up” contribution. If you could contribute $20,000 to your account annually and it grows at 8%, you could amass more than $915,000 over 20 years.
- Be sure to invest your contributions effectively. Many plans will plunk your dollars in extra-safe, low-return investments by default. Consider broad stock funds, such as an S&P 500 index fund, for much of your long-term money. (Check out the fees charged, though, so you can avoid steep ones. Under 1% is OK, and under 0.50% is even better.)
- Don’t borrow from your 401(k) if you can help it — any money removed won’t be growing for you, possibly for years. Also, it can be hard to pay back 401(k) loans on time, resulting in taxes due and penalties charged.
- Don’t cash out when you change jobs, either. Instead, roll your account into a 401(k) account with your new employer, or into an IRA. That will let your accumulated funds keep growing for you. (Read up on the rules so you do this correctly.)
- Be sure to designate one or more beneficiaries for your account to avoid probate and perhaps reduce the tax bill. It’s smart to review these designations every few years.
You can learn more about 401(k) accounts and gather retirement tips at Fool.com/retirement.
My dumbest investment: I lost faith
My most regrettable investment move? I bought 100 shares of the Royal Caribbean cruise line in 2008 at $8 per share. I was happy, getting dividends and a benefit for owning 100 shares when sailing on one of its ships. Then we all know what happened in 2020. At first, I held the stock, thinking the pandemic would end soon. Then the company suspended its dividend. I didn’t panic. But when it started scrapping ships — ships I had sailed on frequently and had crew friends on — I did panic. I sold at $75 per share, so I wouldn’t lose my investment. Look at it now. I lost faith that the industry would survive, so I sold. — K.P., via email
The Fool responds: Yes, the stock’s price was recently around $274 per share, but we still think it’s smart to sell when you no longer believe in a company or industry — why hold on if that’s the case, especially when there are always other promising investments available? Still, it certainly can sting when you see what gains you missed out on. You did sell for a sizable gain, at least! Also note that the stock has swooned recently due to the war in the Middle East, which might last quite a while.
(Do you have a smart or regrettable investment move to share with us? Email it to TMFShare@fool.com.)
Foolish trivia: Name that company
I trace my roots back to my founder, who went from being a penniless drugstore owner to the richest man in Kansas in just five years. He kept me afloat during the Great Depression by buying distressed companies. Today, based in Texas, I encompass seven refineries in the U.S., and I can process 678,000 barrels of crude oil daily. My operations range from refining to midstream to marketing; my offerings include traditional and renewable fuels and lubricants, along with asphalt, roofing material and ingredients for medicines and cosmetics. My logo and ticker symbol evoke the Flintstones. Who am I?
Last week’s trivia answer
I trace my roots back to 1972, when I was launched in Buffalo, New York, as a steel company serving the construction industry. I went public in 1993. Today, with a recent market value around $1.2 billion, I’m focused on developing more sustainable ways to do things such as growing food, harnessing renewable energy and building global infrastructure. I recently bought OmniMax International in order to expand in residential building products. I rake in more than $1 billion annually. I have a ticker symbol that evokes a feature on Spain’s south coast. Who am I? (Answer: Gibraltar Industries)
The Motley Fool take: Big brands, big dividend
When a company is struggling is sometimes (but not always) a great time to buy its stock. That seems to be the case with Hormel Foods (NYSE: HRL). The drop of around 23% in its stock price over the past year has pushed up its dividend yield to a recent 5.1%. Struggling companies sometimes reduce their dividends, but Hormel has been paying dividends for 390 consecutive quarters, since it went public in 1928, and it has increased its payout for 60 years in a row.
On top of that, The Hormel Foundation controls roughly 47% of the company’s stock, using the dividends it collects from Hormel Foods to further its philanthropic efforts. So that dividend is not very negotiable.
Why is Hormel struggling? Well, its portfolio of branded food products hasn’t been firing on all cylinders lately. That portfolio is still powerful, though, with names such as Applegate, Dinty Moore, Jennie-O, Planters, Skippy and Spam. Hormel’s brands hold the No. 1 or No. 2 position for market share in more than 40 categories. Its relatively inexpensive foods are also items consumers will turn to during difficult economic times, and this can bolster the stock during downturns that affect the rest of the market.
Hormel has brought back former CEO Jeffrey M. Ettinger as its new interim CEO in hopes of turning its fortunes around. Long-term investors may want to take a closer look at the company behind this generous dividend yield.
— distributed by Andrews McMeel Syndication
