The Motley Fool

Thorntons plc Rockets Higher On Takeover Bid

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Shares in chocolatier Thorntons (LSE: THT) rocketed 42% higher to 144p when markets opened this morning.

The sharp rise was triggered by the news that Ferrero International SA has made a 145p per share cash offer for Thorntons.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Ferrero, whose brands include Kinder, Ferrero Rocher, Nutella and Tic-Tac, said that it had already purchased shares from a number of major Thorntons shareholders, including three directors.

In total, Ferrero says it already owns 30% of Thorntons shares and has received commitments to sell from shareholders representing another 4.46% of Thorntons shares. This gives Ferrero an effective stake of 34.46%.

As a result, the success of this offer seems almost certain. Ferrero only needs to secure a further 16% of Thorntons shares in order to take control of the firm, by controlling more than 50% of voting rights.

Is this a good deal?

Today’s cash offer puts a value of £111.9m on Thorntons, which was trading with a market capitalisation of £70m on Friday.

The 145p per share offer price equates to a 42.9% premium over Friday’s closing price and effectively values Thorntons’ shares on a 2015 forecast P/E of 23, and a 2016 forecast P/E of 16.

This seems fairly generous to me. Since 2009, Thorntons’ operating margin has averaged just 2.5% and its sales have only risen by an average of 0.8% per year. Operating profit has fallen by an average of 2.4% per year.

The current year has been disappointing, too. The firm’s third-quarter trading update showed a 7.6% fall in sales for the first nine months of the current financial year. Earnings per share are expected to fall by 33% this year and to remain below 2014 levels in 2016.

One particular problem has been that Thorntons has been a casualty of the current changes taking place in the supermarket sector. In its third-quarter trading update, Thorntons reported a massive 6.1% fall in UK commercial (wholesale) sales due to a reduction in order from one major customer.

Thorntons’ shareholders haven’t been rewarded for their patience, either. Dividends are a distant memory, with the last payout having taken place in 2011. At the same time, debt has risen sharply. Interest payments account for nearly a quarter of operating profit during the first half of the current year.

Should you sell today?

As I write, Thorntons’ shares are trading at 144.3p, almost exactly matching the Ferrero cash offer price of 145p.

Ferrero could be buying Thorntons shares in the market today, and I expect that it will have the 50.1% majority it needs to take control of the firm very soon.

If I was a Thorntons shareholder, I would sell my shares into the market immediately, as — apart from the dealing cost — there is no extra profit to be made by waiting for the offer to take effect.

By freeing up cash today, you can focus on finding new investment opportunities.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Roland Head has no position in any shares mentioned. The Motley Fool UK owns shares of Thorntons. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.