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Why did St Modwen shares jump yesterday?

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St Modwen (LSE: SMP) shares rallied by a significant amount yesterday. But why? Well, in a nutshell, it received a possible offer. Let me discuss this in more detail.

The offer

Private equity giant Blackstone made a potential takeover offer for the entire issue of St Modwen shares. This means that housebuilder and warehousing company would be valued at £1.2bn.

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I think it’s great that it’s a possible all-cash offer. Investors would receive 542p per share, which is a 21% premium to the closing price of 448p as of Thursday. It’s a fantastic offer for those who already hold St Modwen shares. Unfortunately I’m not one of them.

In fact, the board of the FTSE 250 company is in favour of the offer. It’s at a value that management “would be willing to recommend unanimously”. And I’d completely agree with this decision. This opportunity gives shareholders an attractive upside as well as the possibility to cash out of St Modwen shares.

What next?

The two companies will be working together to ensure this deal makes it over the line. I think it’s worth mentioning, though, that St Modwen has said nothing is guaranteed for now. It said: “The Possible Offer is subject to a number of pre-conditions, including the satisfactory completion of confirmatory due diligence which is currently underway by Blackstone. St Modwen and Blackstone are working closely together to complete Blackstone’s confirmatory due diligence as soon as practicable. Blackstone has confirmed that the Possible Offer is not subject to any financing pre-condition”.

A further announcement will be made in due course. I guess I’ll have to wait and see what will happen. But I think that this offer is likely to go through. If this does happen, St Modwen shares are expected to de-list and the company will go private.

The company

St Modwen has a £1.4bn property portfolio. The company has a housing arm, a land and regeneration division, and a large logistics real estate business. In fact, warehousing companies have seen huge demand for space due to an increase in online orders during the pandemic.

I think Blackstone has been drawn to St Modwen’s logistics business and the potential to develop this further. E-commerce and supply chain are long-term drivers of this division and I reckon the private equity giant may want to capitalise on this further.

St Modwen shares: would I buy now?

As I write, St Modwen shares are trading at 536p. So if I purchased the stock now and the takeover offer went though, I would have an uplift of 6p, which equates to 1% from my entry point. To me, this upside isn’t too appealing, especially when I have not factored in transaction charges.

Of course, there is no guarantee that this deal will go through. Blackstone could walk away, especially if the due diligence unearths some skeletons in the closet. If this happens, then I’d expect St Modwen shares to fall significantly.

Until a further update is given, I don’t expect the stock to increase any further than 542p. To me, it makes sense. After all, this is the price at which the cash offer is set. I think most of the opportunity is already priced in. So for now, I won’t be buying St Modwen shares.

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Nadia Yaqub 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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