At Goodrich today doing the follow-up training/case study day. I always like doing training in the Goodrich leadership program because the people are motivated and inquisitive in the class. Today was no exception. The interesting topic to start was the purchase of Goodrich by United Technology Corporation (UTC). The deal was announced late last year and should close by August this year. This is an interesting deal. Goodrich has been doing well in spite of the recession so the deal was a good one for shareholders.
When we checked out the stock in class we noticed that the beta was .24. Now .8 to 1.0 is normal for a stable company like Goodrich. Why so low now? The beta of a stock is its volatility relative to the market. So a beta of one is a stock that typically moves up and down with the market. Mature stable companies usually move pretty close to the market which explains why we expected the .8 to 1.0 range for Goodrich. But .24 is as low as I have seen it. Why? Because with the merger announced in October of last year, the purchase price per share was set. With that fact out there, the only way the stock would fall off of that price is if the deal with UTC was dropped. As long as the deal is on track, which it is, the stock price is pretty locked down. So that explains the .24 beta. Isn’t finance interesting!
By the way it is 70 degrees and sunny with no humidity in Charlotte today. What a beautiful day for finance!