Realogy (H) jumped over 19% today on news that private equity firm, Apollo Management LP, is offering $6.65 billion in cash for the company. Realogy shareholders will receive $30 per share at the closing of this transaction. The transaction is scheduled to close in the spring of 2007.
As you might remember, I added shares of Realogy to the Fat Pitch Financials Portfolio on August 2, 2006 at an average cost of $24.06 per share. While Apollo Management’s offer came as a surprise to me this morning at first, when I took some time to think it over it made a lot of sense. The $30 a share offer is surprisingly close to my minimum intrinsic value estimate of $28 per share that I made back in August. Given the market’s short term concern about the real estate market, Realogy’s shares have been trading at a discount since this past summer. However, the long-term outlook for Realogy is excellent given its strong set of real estate franchises, which provide the company with a wide moat. Therefore, it is not surprising that a private equity investor with a long-term perspective decided to take advantage of this opportunity.
Given that Realogy shares today traded above the $30 Apollo offer price and that this offer appears to be a reasonable estimate of Realogy’s value, I decided to sell all my shares today. The market appears to think that there is a chance that the offer price could increase before the deal closes. However, I’m not convinced this probability is high, so I would rather get my cash today, especially since shares were trading for higher than the offer price.
I sold my position of in Realogy for an average price of $30.27 today. That is a 25.8% return since I first purchase the shares. Using my annualized rate of return spreadsheet, I calculated that my 138 day investment in Realogy produced 83.5% annualized rate of return. According to Marketocracy, the Fat Pitch Financials Portfolio is now up 19.48% since the beginning of the year. Since inception, this portfolio is up 23.87%.
I’m a bit disappointed that Realogy is going private since now I have to find a new opportunity that is hopefully as good as the one provided by Realogy. That’s not going to be easy in this hot market. I’m open to suggestions.
Disclosure: I no longer own shares of Realogy.