Private investors are getting a raw deal from recent takeover approaches at discount prices.
I can think of at least four situations at the moment where companies are being taken over at prices that leave you agape at the sheer audacity of it all.
Each is different, but each has one thing in common -- private investors are getting a raw deal.
There may be more crazy deals if you look down the takeover panel's disclosure table, which shows details of all ongoing takeover situations. These are just four I'm aware of, as I either own shares or have considered doing so. In each case, the takeover approaches look like leaving me in a small profit, but that's not really the point. As investors, we weigh potential risk versus reward, and a bid approach usually outs the value and then some. But not in these cases, in my opinion.
Let's have a closer look at the four by descending order of market capitalisation:
1. Invista Real Estate
I took a closer look at the potential value in Invista Real Estate Investment t Management Holdings (LSE: INRE) six weeks ago with the shares at 8.5p. This was lucky timing.
On 23 May, an offer came in at 12.5p per share from Internos Group. So it may seem as if the premium of around 55% over the previous day's closing price was a good deal. But, as I pointed out in April, the net asset value is over 24p a share and net cash is around 13p per share.
And to make matters worse, we were told this is effectively a done deal as the bidder has received total irrevocable undertakings for almost 80% of the Invista shares. So unless a bidder emerges quickly with an offer 15% or more than 12.5p, it's a deal -- and we private investors are left with the feeling of our pockets having been pinched by institutions.
2. Morson
Even worse is the potential takeover of Morson Group (LSE: MRN) at 50p per share. I took a closer look at Morson as one of four shares that I thought could double back in January at 43.6p.
At the time, I pointed to the wisdom of aligning one's interests with the owners, stating that the father and son, chairman and CEO, together hold over 46% of the shares. How wrong I was. I also pointed out that the forward price-to-earnings ratio was less than four and that the company stood at a discount to its net tangible asset value (NTAV).
The irony now is that the company is being bought back by a company controlled by the father and son at a price around the NTAV. Morson was floated at 160p in 2006 but cancelled dividend payments last December, causing the share price to almost halve to 40p.
So it's easy to see why private investors are again feeling like they've been mugged; a feeling articulated by one shareholder who blasted the bid in the Manchester Evening News last week.
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3. Deo Petroleum
The most recent audacious offer comes for Deo Petroleum (LSE: DEO) by Parkmead (LSE: PMG). The deal involves two Parkmead shares for each Deo share. This, it is noted, is effectively a 40% premium to the previous day's Deo closing price.
The trouble is, it values Deo's assets very lowly indeed, causing understandable frustration among many Foolish shareholders who have been discussing the pros and cons of the bid.
The bottom line is that Deo needed capital. But this still looks a far better deal for Parkmead than for the owners of Deo Petroleum.
4. Lees Foods
The potential takeover of Lees Foods (LSE: LEE) was also explored in detailed in a Foolish discussion. The offer of 230p was at a tiny premium to the previous day's closing price of 224p and came from a company formed specifically for the acquisition, which includes the Lees directors.
Fighting back
ShareSoc deserves a great deal of credit for highlighting poor corporate governance in general, and bringing particular attention to the Lees bid.
In all of these situations, private investors feel like they're being fleeced. Perhaps the greatest pity is that such audacious bids and seemingly already "done deals" deter us from investing in any small cap companies. A few rotten apples can spoil it for the whole bunch. But with greater discussion, negative publicity and collective action, there are at least some ways we private investors can fight back.
Let me finish by adding that growth shares ripe for takeover can still provide superb returns -- if things work out! If you would describe yourself as an ambitious investor, then I feel you'd also like this special free report:"Ten Steps To Making A Million In The Market".
Further investment opportunities:
> David owns shares in Invista Real Estate, Morson & Deo Petroleum. He does not own shares in any of the other companies mentioned.
