Why the IDS share price could leap next week!

On 17 April, the IDS share price skyrocketed after a foreign bidder made a takeover approach. But time is rapidly running out for this auction process.

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Go back almost a year to 25 May 2023 and the International Distributions Services (LSE: IDS) share price languished at a 52-week low of 191.2p. On Friday (10 May), stock in the owner of Royal Mail closed at 280.2p. What’s caused this near-47% jump in the share price?

IDS is ‘in play’

On 17 April, International Distributions Services shares soared as news of a foreign takeover bid emerged. Though this offer was promptly rejected, this bidder could return by the middle of next week.

The would-be owner of this 508-year-old British institution is billionaire Daniel Křetínský and his EP Group. Křetínský — nicknamed the ‘Czech sphinx’ — has acquired a reputation for big, bold European acquisitions.

Priced at 320p a share, his initial proposal valued this FTSE 250 firm at £4.5bn — a near-50% premium to the previous day’s closing price. But after the directors rejected this bid, Křetínský has until 15 May to return with an improved offer.

The M&A playbook

What generally happens in the mergers and acquisitions FTSE 100 and FTSE 250 playbook is the putative bidder returns with a second, higher bid.

This may be accepted — or rejected, perhaps triggering a third round of talks. Also, on occasion, this auction process causes other interested buyers to throw their hats into the ring.

Clearly, for Křetínský to have any chance of winning over the directors and major shareholders of the firm, he’s going to have to return with a bid price north of 320p. But what if his second offer also falls flat?

What next?

If the two parties don’t reach a deal on an agreed valuation for this business, then the auction could fall apart, with both sides walking away. Under UK Takeover Panel rules, this would prevent Křetínský returning with a follow-up bid for six months.

Generally, when takeover bids fall apart, the target’s share price usually follows suit. Hence, the share price looks like a binary bet to me right now. If a deal can be made, then the shares could surge. But if no offer is accepted, then down goes the stock.

With a 27.5% holding, Křetínský is already International Distributions Services’ largest shareholder. Nevertheless, he can’t steamroll the board into accepting what it sees as an inferior bid. Hence, I suspect an offer closer to, say, £4 will be needed to seal any deal.

Schrödinger’s shares?

That said, this would be a 25% uplift from Křetínský’s initial bid of 320p a share. And if he were to walk away, the fall could be quite steep for this stock. But he may be very keen to acquire GLS, the company’s highly profitable European logistics business.

Meanwhile, talks between the two sides continue, with that all-important deadline looming midweek. Hence, the IDS share price seems to me to be in a position similar to Schrödinger’s cat. Right now, it could be worth both more and less than the current price, depending on next week’s outcome!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Cliff D'Arcy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

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