Why are agreed takeovers priced over purchase price?

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30th May '21 by GrahamScott

6 comments 683 reads

I’m confused by recent price increases in shares of Equiniti and Spire Healthcare. Both firms have accepted takeover bids. Equiniti at 180p and Spire Healthcare at 240 yet both are now selling for more than this. Can anyone explain why this is happening please.

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GrahamScott

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6 comments

Blissgull

30th May '21

Not sure in these specific cases, but usually it reflects the possibility of a higher offer being made, or a future dividend payment. Sometimes if there is a large bid/offer spread the reported price may appear higher that shareholders could actually achieve.

gus 1065

30th May '21

The terms “agreed” and “irrevocably accepted” when used in the context of a bid mean that it’s agreed only until and unless the shareholders get a better offer. There’s usually a minimum additional amount required that the second bid has to top the first offer (typically 10%) for the original agreement to become non binding.

For example, in the case of the Spire bid one of their big shareholders, Mediclinic, have given an irrevocable undertaking to accept the offer with following proviso:- “Mediclinic confirms it has provided an irrevocable undertaking to vote in favour of the Offer. The irrevocable undertaking will cease to be binding if, amongst other things, a competing offer for Spire is made that provides for an amount or value of consideration which is not less than 10 per cent greater than 240 pence per Spire share and Ramsay fails to match or better such offer.”

I think the Spire offer is perceived as being a bit low ball (there’s apparently a substantial land bank in the background) and there is a view a competitor bid might come along; holding out for a better offer/buying shares at a premium can be risky however. Holders in Revolution Bars (LON:RBG) will recall a hostile bid (i.e. one that wasn’t recommended by the target company Board) at above 200p a share a couple of years ago that was contested by another prospective offer and the shares went to a healthy premium in the expectation of a bidding war. In the event both bids fell through and shareholders are now looking at about 20p a share.

Gus.

GrahamScott

30th May '21

excellent - thanks Gus & Blissgull

ricardomontalban

6th Jul '21

Hello! Now I am confused - Spire Healthcare (LON:SPI) shares have now fallen to 238 yet Ramsay have raised their offer to 250 per share from 240. Is this simply a reflection that the need for a new improved offer has raised the prospect that the takeover may be completely rejected? I hold.

ISAallowance

6th Jul '21

Spire Healthcare (LON:SPI) Yes, apparently a major holder, Toscafund, are opposed.

Johnsy

7th Jul '21

Current net profit: -234m. You'd think the last year would have been a lucrative one for private hospitals because of routine NHS operations being offloaded to the private sector, to better allow NHS hospitals to care for their covid patients. Book value is sinking like a stone, which leads to wonder if asset strippers are in charge.

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Why are agreed takeovers priced over purchase price?

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About the Author

GrahamScott

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