Although it has given back some of its gains now, the Blackmores Limited (ASX: BKL) share price was one of the best performers on the S&P/ASX 200 index this morning with a sizeable gain.
At one stage the health supplements company's shares were up 9% to $83.46. At the time of writing they are 5% higher at $80.66.
Why did the Blackmores share price surge higher?
The catalyst for this rise was news that infant formula company Bellamy's Australia Ltd (ASX: BAL) has received a takeover approach from Chinese dairy product manufacturer, China Mengniu Dairy Company.
The Hong Kong-listed dairy giant has tabled a $13.25 cash per share offer, which was a 59% premium to the last close price and values Bellamy's at approximately $1.5 billion.
Whilst this is a significant premium to the last close price, it is still around 40% lower than where Bellamy's shares traded at in 2018.
This share price decline has been caused by a temporary downturn in its sales performance due to lengthy delays in gaining the approval required to sell its infant formula on the China mainland again following regulation changes.
So, with the Blackmores share price down by over 44% from its 52-week high, I suspect that some investors believe that suitors could be lining up a takeover offer for it as well.
Should you invest?
Whilst I would agree that Blackmores could be an attractive takeover option for some companies, buying in hope of a takeover approach is a dangerous game to play.
After all, if one does not materialise, the most likely scenario is a significant pull back in its share price.
In light of this, I would suggest investors only buy Blackmores' shares if they are comfortable with the direction the company is going and are prepared to hold onto its shares for the next few years.
