Arm Attracts Big Bid Despite Brexit

THE WEEK: Rodney Hobson congratulates Arm Holdings for attracting a multi-billion pound takeover bid despite the dreary Brexit backdrop

Rodney Hobson 22 July, 2016 | 5:54PM
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Congratulation to long term shareholders in Arm Holdings (ARM), the British technology company on the receiving end of a £24.3 billion bid from Japanese group SoftBank. Yes, that’s billions, as in the sort of money that Japanese and other Far Eastern companies are not supposed to be putting into Britain since we decided to quit the European Union.

Yet SoftBank is not only stumping up cash, it has promised to double the workforce in the UK over the next five years.

Some commentators think that the Arm board could have stuck out for even more but shareholders who have seen the shares soar to four times their value of four years ago will feel they have done very nicely. In fact, it is the SoftBank shareholders who feel aggrieved after their company’s share price slumped 10%, once again demonstrating that it is shareholders in the target company who tend to do better in a takeover.

Arm shares have settled just below the £17 bid price. It isn’t wrong to take your profit now and reinvest the money but I would be inclined to hold on for the full amount. The offer is through a scheme of arrangement which requires 75% of Arm shares to be voted in favour. Shareholders should not hesitate to vote yes when the time comes.

Vodafone’s Brexit

Vodafone’s (VOD) decision to report all figures in Euros from April 1 is mildly inconvenient for UK investors although it makes sense with more of the telecom giant’s revenue coming from the eurozone than in any other currency.

The timing is unfortunate as, given the fall in the value of the pound over the past month, the figures would have translated into far more pounds and the trading update would have sounded much better.

However, the figures are on the whole decent enough. I still worry about a future linked more heavily to the stagnant European Union economies now that the American operations have been sold but have decided to stick with my own reduced holding.

I do note, though, that the biggest growth in percentage terms of any area has been Turkey. From Vodafone’s point of view the disruption cause by the attempted coup has probably been minimised by the rapid resolution of the issue. That President Erdogen is shaping up to take on dictatorial powers is a political rather than an investment issue. It is unlikely to be a serious setback for Vodafone.

Vodafone’s shares shot up after the update but I don’t regret selling part of my holding a couple of years ago and investing the proceeds elsewhere.  The FTSE 100 index may be back to where it was last August but Vodafone isn’t.  I wouldn’t chase the shares higher at this stage. They look about right for now.

Is No News is Good News for Royal Mail

Readers will know I am not a fan of Royal Mail (RMG) but this week it delivered some better news: nothing much has changed.

Letters continue to decline, down 2% in volume and 3% in revenue, which is perhaps fractionally worse than before, but parcels continue to grow by 2% on both measures. Meanwhile GLS, the European parcels arm, powers ahead by 13%.

The letters side will get worse, since the latest figures were boosted by the referendum, but that is a dying business anyway.

The shares have settled just above £5 so they still show a decent profit on the ludicrously low £3.30 flotation price. The yield of just over 4% makes them worth holding, though I wouldn’t advise buying unless there is a dip back below £5.

Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Vodafone Group PLC70.08 GBX1.74Rating

About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.

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