Investing In Companies When a Bid Fails
If you've seen a story about a company that's been bid for, and the bid didn't happen, it's always worth thinking about an investment.
It happens quite a lot. Company gets bid for, its price soars. Then an announcement comes that talks were terminated, price goes back down. It's often worth buying some of the shares once this has happened. Because more often than not, the company ends up falling to a bidder in the future and if you're patient, a buy after the bid is rejected can pay off.
A good example is 888 Holdings. It's been the subject of a bid once or twice previously. Each time, a buy after the bid talks were called off would have paid off.
I got some at 115p a while back - they'd previously turned down a bid from Ladbrokes. Then it was announced William Hill was bidding and the price soared to 175p. I took immediate profits on it as rumours were that 888 wanted a much better price than a mooted 200p from William Hill. The talks duly ended and when the price came back that morning I bought again this time in the 140s.
The thing is, with so many betting companies around, it's likely after the Hill bid that others will be eyeing up 888.
The newspaper rumours were that a major shareholder was looking for 300p a share. My feeling is 230p might end up a takeout price.
And so I just intend to be patient. Just like I was with another company that often turned down bid offers - Kentz.
That one was bid for at very low prices such as 450p but eventually went at the lovely price of 932p making me a fortune in the process.
Another one that got bid for recently was Iomart, about six months ago. The mooted price was around the 300p level. When bid talks terminated, the shares slumped to 165 where I bought, then bought more at 180 and near 200.
In bidding rules the company that made the original bid is able to bid again after six months and with Iomart in the hot big data sector it would be no surprise if others weren't tempted to have a look.
So again I intend to be patient.
There is no better feeling than waking up to the news a company you're in has been bid for and often you'll see a rise overnight of anything between 20 and 40%, sometimes more if you are lucky.
Often bids are a sector story and my three sectors for bids are gaming, oil services and palm oil.
Two of my palm oil companies have been bid for recently at great prices, Narboro Plantations and New Brit Palm Oil.
In gaming there are lots of smaller companies around the big boys might want a look at such as 888 - and there's potential in GVC and 32 Red.
And in oil services, with prices very depressed it wouldn't be a surprise to see a sudden takeover in that sector. Many possible targets there - Hunting, Wood, Petrofac, Gulf Marine.
Sometimes if a sector becomes active and you're not sure which one to go for you can buy a sector spreadbet; many spreadbet companies do these. You are buying a basket of companies rather than just one.
So I've bought an oil services spreadbet - this contains a basket of shares like Gulf Marine, Hunting, Lamprell. If the sector as a whole makes a comeback the bet could pay off and if there is a bid for one of them, again the bet will benefit a lot!