Time to bank profit after surprise Lavendon bid
EQUIPMENT hire specialist Lavendon, which helped to install the Christmas lights in London’s Regent Street, has had an exciting week. On November 21, the company’s share price closed at 139p. The following day, the stock soared to 197p. The reason was a 205p-a-share cash bid from Belgian equipment and parts group TVH.
Though the bid looks generous at first sight, it has not been recommended by the board, primarily because certain large shareholders think the price is too low. These include investment manager M&G, which holds almost 19 per cent of the stock.
TVH does have support from two large investors, which own just over 12 per cent of the shares between them, and it bought a further 5 per cent in the market last week. But that still leaves an awful lot of shareholders to be persuaded.
Midas recommended the stock in April, when the price was 134p. The shares jogged along until last Monday’s offer, but they now sit at 204¼p. TVH has said its offer is final unless a rival bid comes along and there is, of course, a chance that a third party will enter the fray with a higher offer for Lavendon, sparking a bidding war.
Some investors may feel like waiting to see what happens and some may feel inclined to follow M&G’s lead and put their faith in Lavendon’s long-term future as an independent company.
The issue is further complicated because TVH has said that right now it will only proceed with the deal if investors with 75 per cent of the shares vote in favour, but it reserves the right to reduce this to 50 per cent plus one share at a later stage.
Most observers believe the chances of a rescue bid emerging are relatively slim. The most obvious candidate is UK equipment hire group Ashtead, which launched a joint bid for Lavendon with TVH back in 2011.
Since then, Ashtead has become increasingly focused on its American division, so there seems little reason for it to bulk out its UK business now.
Private equity firms have also been touted as potential white knights, but they are famously reluctant to enter into bidding wars.
The share price – hovering just below the offer price – is extremely telling, suggesting that the stock market does not expect a rival bidder. That leaves TVH as possibly the only game in town.
Given M&G’s stated antipathy towards the offer, it would be difficult for the Belgians to reach the 75 per cent acceptance level. But, if they want Lavendon badly enough and they hear supportive noises from other big investors, they may go down to the 50 per cent acceptance mark. In that case, their chances of success are significantly bolstered.
There is also the possibility that they will walk away entirely. In that case, the shares would almost certainly fall. However, Lavendon’s performance has been improving and analysts believe the stock should comfortably exceed 200p over the next 12 months if the group remains independent.
Midas verdict: Investors who bought in April have already benefited handsomely from the bid, so all but the most intrepid should sell out and bank the profit. But the saga is still at an early stage, so adventurous investors may prefer to hold out for a little longer.