Why Are Angie's Shares Trading Sharply Above The $8.50/Share Bid Price From IAC?

This week, IAC/InterActiveCorp IAC agreed to a $500 million buyout of Angie’s List Inc ANGI worth at least $8.50 per common share. However, Angie’s list shares are up another 8 percent on Wednesday to $10.27, well above the value of the potential buyout price.

For investors wondering what’s going on, the terms of the deal provide a bit of insight. While $8.50 in cash per share is the floor of what Angie’s List shareholders can expect, they can also choose to exchange their current shares for shares of the new combined company.

Related Link: At This Point, IAC Offer Is A Good Outcome For Angie's List Holders

According to Benchmark analyst Daniel Kurnos, all questions can be answered by looking at the valuation of the combined company. At an estimated enterprise value of $4.0-5.4 billion based on current guidance, Angie's List Homeservices is worth between $8 and $11 per share on its own using valuation multiples of peers.

At the same time, IAC shares are down 0.5 percent on Wednesday after a 14.3 percent gain on Tuesday. While the market clearly sees the deal as a positive for IAC, Kurnos tells Benzinga the merger is not as big of a deal for IAC as it is for Angie’s List.

“People are continuing to buy ANGI now ahead of the merger assuming there will be upside, but HA-ANGI doesn’t contribute as much to IAC as Match does,” Kurnos explains. “Plus, IAC reports after the close today, with people taking bets on those results too.”

Following the merger news, IAC shares are now up 47.5 percent in 2017, while Angie’s List shares are up 25.1 percent.