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London Capital (LSE:LCG) was not one of my more inspired share tip ideas of the Autumn. I rated them as a speculative buy on October 23rd at 52p. The company rewarded my faith with yet another profits warning pre Christmas. Worryingly net cash at the year-end was down to £20 million. Given that much of that is tied up as regulatory capital I can only contemplate what the actual free cash position is and despite cutting its costs, depressed market conditions mean that it is still losing money.
My not too hot share tip is HERE
But there is a God. On 12th February the spread betting firm announced that it had received three bid approaches. The statement reads:
“London Capital Group notes the recent rise in LCG’s share price and announces that it has received preliminary approaches from Cantor Fitzgerald Europe (“Cantor”), GAIN Capital Holdings, Inc (“GAIN”) and City Index Limited (“City Index”) regarding a possible acquisition of the entire issued and to be issued share capital of LCG. There is no certainty that any of these approaches will lead to an offer being made for the Company.
Rule 2.6(a) of the City Code on Takeovers and Mergers (the “Code”) requires Cantor, GAIN and City Index by not later than 5.00 p.m. on 12 March 2013 (the “relevant deadline”), to either announce a firm intention to make an offer for LCG in accordance with Rule 2.7 of the Code or announce that it does not intend to make an offer, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. The relevant deadline will only be extended with the consent of The Takeover Panel in accordance with Rule 2.6(c) of the Code. “
Oh, so the shares jump sharply and then news of three bid approaches emerges. No insider dealing there then. Move along quickly. Do not ask questions.
Now at a 56p share price the company is capitalised at just shy of £28 million. My guess is that net cash is now down to £19 million and happily draining away A contested bid battle might see the company go out at a premium but on the other hand the costs of integrating London with any of the other three businesses would be high ( you would have to fire a lot of people on big contracts) and so even if the company went out at 56p any bidder would be paying a good amount for a loss making business with no guarantee that clients would stick.
There is no guarantee that any of the three will make an offer. And so prudence prevails. I would take the bid excitement to get out – sell.
Tom Winnifrith is half of the team behind t1ps.com during the 12 years when it delivered such stellar gains on its share t1ps. The other half is Steve Moore who quit t1ps on a matter of principle in October 2012. The two men are now replicating the t1ps success with a new product The Nifty Fifty, details of which you can find here – the next hot tip from N50 goes live on Friday
