De La Rue, Mouchel, and Rio Tinto get takeover talk buzzing.
One perennial sign of a disconnect between stock market investors and the confidence of company directors is predatory activity.
While traders continue to focus on macro themes -- or should that be fears -- like sovereign debt risks in Europe and high unemployment in America, many companies see business booming.
With returns on cash at historic lows while economic uncertainty persists and investors sit on the sidelines, it makes sense for cash-rich companies to take advantage of the resultant low share prices -- either by buying back their own shares, or by swooping for their rivals.
On Monday alone, three takeover stories whipped around the markets, proving that directors see value, even if investors don't.
Dashing for De La Rue
Only last week we pondered the falling knife that is De La Rue (LSE: DLAR), which supplies banknotes to over 150 nations, as well as related documents like passports and travellers cheques.
De La Rue shares have been down as much as 40% since the discovery in July that employees were falsifying paper quality certificates. But a bid approach -- thought to be from French rival Oberthur Technologies -- has now undone much of that damage. As I write, the price is up 22% to 793p.
Media speculation says that De La Rue has rejected what the company calls "a highly preliminary and opportunistic approach". Analysts at Panmure Gordon believe the offer is in the region of 750p to 800p, all-cash.
I suspect Oberthur Technologies -- assuming it is the bidder - will bid higher at least once, given this rare opportunity to become a giant in the sector. But the prospects of a bidding war look remote, precisely because of the scarcity of rivals able to value and find synergies in De La Rue.
The shares looked good value last week, but much that short-term value has now been realised.
Predators mooch around Mouchel
Investors have done well to wield their barge poles when confronted with cheap-looking infrastructure companies recently. The share prices of even the most-admired companies such as Capita (LSE: CPI) have been clobbered by spending cut worries, while softer demand has exposed seemingly 'aggressive accounting' in the worst cases, with two former FTSE 250 players -- Rok and Connaught -- going bust.
Some expected Mouchel to meet the same fate; after a profit warning in mid-October, the shares fell as much as much as 60%, leaving the former high-flyer worth barely £60 million.
Rivals smell a bargain. On Monday management confirmed it had received multiple approaches for the company, which as you'd expect it said under-valued the business.
Mouchel's share price is up 33% on the day -- aside from the takeover speculation, some buyers may have bought into the rest of the trading statement, which mooted selling non-core assets and indicated some progress on refinancing net borrowings of £109 million.
The order book of £1.8 billion may seem a comfort, but those doomed rivals had plenty of work on their books, too, and management says the outlook remains "cautious". Personally, I prefer the look of entrepreneurial Morgan Sindall (LSE: MGNS), which has been picking up the work of bankrupted competitors.
Rio Tinto fishing for Riversdale
For every takeover target there's at least one predator, and with all the cash pouring into the coffers of mining companies, it's no surprise they've been on the hunt.
BHP Billiton (LSE: BLT) recently failed in its $35 billion mega-bid for Canada's PotashCorp (to the relief of some shareholders) but the relatively modest approach by its rival Rio Tinto (LSE: RIO) for £2.2 billion Australian miner Riversdale looks a likelier bolt-on.
Riversdale mines coal and coke in Africa. Such traditionally unglamorous activity is currently in the limelight, as emerging market steel giants look to acquire own coke resources to curb the power of behemoths like Rio Tinto.
But while the approach makes strategic sense, there's been no formal bid submitted yet, and investors have marked down Rio's shares by 0.5% on the news.
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