Shares of car insurance company Root (NASDAQ:ROOT) skyrocketed yesterday following rumors of a potential acquisition. As per a WSJ report, insurance-tech mogul, James Hall-led Embedded Insurance has made a bid to acquire Root for $19.34 a share. The offer price represents a roughly 221% premium over Root’s closing price of $6.02 on Tuesday, June 20. Following the news, ROOT stock gained 59.8% during the end of the trading session yesterday, closing at $9.62, much below the offered price. Shares continued their rally in after-hours trading and surged another 41%.
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Embedded Insurance is said to have been interested in the takeover since July of last year. Hall first offered the bid price of $19.34 on June 9, 2023, and tried to engage in negotiations with Root’s Board. However, Root’s board is still evaluating the deal and seeking to deliver maximum value to its shareholders. Notably, Embedded Insurance’s motives are clear from the fact that the company has even pledged to keep aside the sum required for the deal in an escrow account well before finalizing the buyout agreement.
Exploring the Intriguing Journey of Root’s Timeline
Root was founded in 2015 as a tech-driven car insurance company that uses artificial intelligence (AI) and data science methods to quickly calculate customers’ premiums. Later in 2019, the company also entered the rental car insurance space. In 2020, Root debuted in the public markets with an initial capitalization of over $6 billion.
Seeing its business flourish, Carvana (NASDAQ:CVNA), an e-commerce platform for buying and selling used cars, invested $126 million in Root in August 2021. Carvana received convertible stocks and warrants in return for its investments. Hence, it’s not surprising that CVNA stock also gained 2.8% yesterday in response to Root’s takeover rumor. The companies made a pact to sell insurance to customers in 2022, but the businesses slowly fell apart as the post-pandemic lull in used car prices impacted their sales and bottom lines.
Early this year, Root’s COO and Chief Revenue Officer, Daniel Rosenthal, stepped down from his role. This was followed by the dismissal of Root’s CFO and Treasurer, Rob Bateman, by the company on account of policy violation.
What is Root’s Stock Price Prediction?
Yesterday, Wells Fargo analyst Elyse Greenspan maintained a Hold rating on ROOT with a price target of $6, implying 37.6% downside potential from current levels. Overall, on TipRanks, Root has a Hold consensus rating based on one Buy, two Holds, and one Sell rating. The average Root stock prediction of $7.63 implies 20.7% downside potential from current levels. Meanwhile, year-to-date ROOT has gained 213.2%.
