The Melrose-GKN battle drew to a close a few hours before the markets closed for Easter. So this week I’m reviewing the outcome of this hostile bid and the result its delivered for the SIF portfolio.

I’m also going to take a look at the foreign stocks I added to the international version of the SIF last month.

Melrose wins GKN contest

Shortly before markets closed on Thursday, turnaround specialist Melrose Industries issued a statement confirming that more than 52% of GKN shareholders had accepted its takeover offer.

As GKN is a portfolio stock, this is relevant to us. The takeover offer means that GKN shareholders will receive the following for each GKN share they own:

  • 81p per share

  • 1.69 new Melrose shares

  • Final GKN dividend of 6.2p

At the last-seen Melrose share price of 229p, I calculate that the Melrose offer is worth 474p per GKN share. This would result in a total return of about 5% on the portfolio’s purchase price of 444p.

However, as around 80% of the payout will be in Melrose shares, this value is likely to change before the deal completes. This is probably why GKN shares are only trading at about 450p at the time of writing.

As the SIF Fantasy Fund isn’t able to handle the complexity of this kind of corporate transaction, I will simply close the GKN position at the market price this week. I expect to break even, roughly.

This indifferent result leads me to my final point. Adding GKN to the portfolio was a mistake. This isn’t because it hasn’t made a profit. It’s because a company that’s in a bidding period is clearly a special situation. This puts it outside the scope of the SIF portfolio.

There’s no harm done this time, but this is a useful reminder that investing outside the rules has rarely added any value to the portfolio.

A US super stock for the International SIF

As promised last week, here’s a review of the three foreign stocks I added to the international version of my Stock in Focus portfolio in March.

You can read more about this virtual portfolio in my introductory article from November. In short, the idea is to select stocks using my rules without really knowing anything about the underlying companies. I want to…

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