We don’t get a lot of interesting takeovers these days, so two possibles on one day this week is a bit of a bonus. Both involve a struggling company and throw up a dilemma for existing shareholders.
First up was Thorntons (THT), the chocolate company that really ought to be a raging success but which has somehow never quite found its way, either as a retailer of its own quality products or as a supplier to other outlets, since it floated in 1988.
An approach from the Italian chocolatier Ferrero brought an immediate leap in Thorntons shares from 101.5p to 145p, the best level since they peaked at 166p in March last year. What is surprising is that 145p is the level of the cash bid, so the implication was that the market was betting on a higher bid coming from somewhere.
Heaven knows where. Ferrero is obliged to bid for the outstanding shares because it now holds more than 30% of Thorntons, so any rival bidder would have to put up something very tempting to prompt Ferrero to back off. Given that Thornton produced disappointing sales last Christmas, this is too much to hope for.
I belong to the school of thought that says you are generally best to hold on to the end in any takeover, the possibility of a higher bid outweighing the fear that it all falls through, but in the case of Thorntons I would be inclined to take 143p or higher now and put the money to use elsewhere. If you do decide to wait, make sure you accept the offer just before it closes on 13 July.
The position with bookmaker Ladbrokes (LAD) is far less clear cut, not least because there isn’t actually a specific deal on the table. Ladbrokes is in talks with privately-owned Gala Coral over a possible merger that would technically take the form of a reverse bid by Coral.
Two issues quickly spring to mind. Ladbrokes actually bought the Coral betting shop chain in 1998 but was forced to unwind the deal after a monopolies inquiry. The latest proposal could also fall foul of competition issues.
However, a great deal has changed in the past 17 years, most notably the move to online betting, where Ladbroke is weak but Coral is strong. The combined chain might have to sell a number of betting shops but that should not be too much of a hardship if the future is increasingly online.
Secondly, both companies have struggled with issues such as tax and regulatory issues, debts and underperformance so the combined group is likely to need a share placing or rights issue, which will take the gilt off any premium Coral pays to win over Ladbroke shareholders.
The big fear is that the possible deal will distract Ladbrokes’ new chief executive Jim Mullen from turning the company round and delay his much-needed strategic review.
Ladbrokes shares had already been edging up from a low of 100p in April and they jumped to 140p before easing back. This is a shot in the dark, as we don’t know the terms of any deal and it may turn out to be effectively a merger rather than a reverse takeover.
Shareholders should stay alert to the situation and be prepared to bail out if they feel the shares have moved high enough. There are better bets out there than this combined group.
Is the Basket Half Full or Half Empty?
Suddenly supermarkets are back in fashion. Tesco (TSCO), like Sainsbury (SBRY) earlier this month, has produced a mixed basket of figures that shows sales slipping further in terms of revenue but actually growing in terms of the amount of goods sold. In other words, they are selling more but at lower prices.
This suggests that the major chains are losing less to Aldi and Lidl. They will also be benefiting from paying lower prices to their suppliers.
Tesco has wider problems because of its international presence. Asia continues to struggle, so the sooner the Korean stores are sold the better. Ireland is doing particularly badly while Central Europe and Turkey are coming good at last.
The outlook for quoted supermarkets is, on the whole, better than it has been for some time but let’s not get carried away. I wouldn’t chase the shares higher purely on the basis of the latest news.
