Why Arctic Cat Stock Is Jumping Like It Just Encountered a Hot Tin Roof

By Rich Smith Markets Fool.com

Image source: Getty Images.

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What happened

Arctic Cat (NASDAQ: ACAT) stock is up 41.7% as of 12:15 p.m. EST, and Textron (NYSE: TXT) stock is down 11.2%. These facts are not a coincidence.

So what

Earlier this morning, Textron paired an underwhelming earnings report (quarterly revenues down 2.5% year over year, and profits per share down 3.8%) with an announcement that it will spend $247 million to buy out leading all-terrain vehicle- and snowmobile-maker Arctic Cat.

The acquisition news sent Arctic Cat shares jumping, while Textron shares dropped in response to the poor economic news, combined with fears Textron may be overpaying for Arctic Cat.

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Now what

Arctic Cat has been reporting losses of late, and its stock was down more than 28% from a July high of $18.27 per share before this announcement. It's lucky for Arctic Cat shareholders, then, that Textron has decided to step in and save them from themselves.

Textron's bid of $18.50 per share for Arctic Cat returns the stock to its highs of last year. Indeed, with investors now bidding $0.05 more than Textron's bid price, there even seems to be a chance that Arctic Cat stock will go higher, should another would-be buyer step into the fray, and try to put this Cat in a bag.

Will that happen? I rather doubt it. Arctic Cat's sales were down 22% last quarter, and a warm winter probably won't do much to improve matters when Arctic Cat next reports. My hunch is that shareholders should take a cue from Arctic Cat's stock price this morning -- and jump at this chance to exit the stock with their profits intact.

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Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.