Robotics specialist Blue Prism (LSE: PRSM) has had a disappointing year, with the shares 12% lower than they were 12 months ago. Over a longer period, the Blue Prism share price has been rewarding for owners, tripling in a little under five years. But recent weakness has flushed out a potential buyer.
Sometimes when companies are approached by a possible suitor, a bidding war ensues and the share price jumps handsomely in just a few months. A recent example was the takeover tussle for Morrisons. But I don’t expect the Blue Prism share price to rise much from its current level despite a takeover bid. Here’s why.
Blue Prism takeover bid
Yesterday, Blue Prism announced to the stock exchange that it had agreed a recommended cash acquisition which valued the company’s shares at £11.25 each. That represents a premium of 35% to the share price before the deal was first mooted last month. However, it’s much lower than before the pandemic. The company entered 2020 with its share price over 50% higher. So for more longstanding shareholders, the deal could mean a substantial loss in their portfolio. It may come across as opportunistic.
On the other hand, the company had been facing difficulties. Some large shareholders reportedly suggested that the company investigate the option of selling itself. The company has been consistently loss-making. While revenue last year grew to £141m, losses were a whopping £82m. So it may be that the company’s business model wasn’t well suited for the stock market. Taking it private may give it breathing space to help it fix its performance issues out of the public glare.
What this means
The bidding process has been in the press for weeks, and a bid has now been agreed by the board. That doesn’t mean that it’s a done deal. It will still need to be approved by shareholders. In the meantime, even in the absence of a white knight bidder at this stage, shareholders who view the bid as opportunistic could try to get the board to elicit a sweetener. For example, they may want the directors to wring a higher offer out of the current bidder.
The share price is actually about 40p higher than the bid price, so clearly some investors reckon that such a deal sweetener could be on the way. So even now, there could be potential upside to the Blue Prism share price.
My next action
But I’m not buying. There’s no guarantee of a higher bid, in which case buying at today’s price, knowing the board has agreed to sell the company for a lower amount, would equate to buying pound coins for £1.04 each — if the deal is finalised.
On top of that, as an investor rather than a speculator, I’m not attracted to the Blue Prism business at this point. Its weak business results highlighted risks ranging from management performance to profitability. Those remain, in my view. Maybe a private equity buyer can fix them. But I wasn’t attracted to the company before the bid and I won’t add it to my portfolio now.
