When a takeover premium is not enough! Part 1

Those you that know me initially from Twitter as @conkers3, will be well aware of my preference for buying undervalued contrarian stocks that have the potential catalyst of a turnaround. Of course this only forms part of the multi-faceted strategies within my whole portfolio.

The frustrating thing about buying turnaround stocks is that without strategic and proactive specialists at Board level companies can languish at multi year lows for many years. Therefore selection of such stocks requires extensive research. Not something that all investors have the time or inclination to do.

Therefore it is extremely frustrating and on some occasions annoying, when a company that you have researched thoroughly and purchased as turnaround contrarian stock, gets “taken under” for a low ball acquisition price.

Year to date, this has happened within my portfolio on three occasions:

1) Technology stock ACCUMULI SECURITY, which I had purchased for its cybersecurity niche and turnaround potential.  They were acquired by NCC Group (LSE: NCC) for approximately 32.8 pence (cash and shares scheme) a pitiful 19.1% premium to its 27.5p share price, the last business day prior to the takeover announcement. Thankfully on this occasion I did not let my annoyance get the better of me, instead I opted to stay on-board and now I hold NCC* within my portfolio.  Therefore not missing out on the continued turnaround in ACCUMULI’ fortunes and the growing global need for additional cybersecurity solutions.

*I will discuss NCC in a future blog.

2) Technology stock PHOENIX IT Group, which I had purchased for its hosting and cloud business. In addition, I bought them as they have installed a technology turnaround specialist in the form of Steve Vaughan as their new CEO.  After completing the first phase of an improvement strategy to enhance profitability, Phoenix returned to profitability.

A mere fourteen months after Steve Vaughan’ arrival, PHOENIX received a takeover offer from DAISY GROUP for £1.60p per share. The “take under” represented a 24% premium to its £1.29p the share price the last business day prior to the takeover announcement.  As DAISY GROUP is privately held, I was unable to participate on this occasion in PHOENIX’ future growth.

Given that PHOENIX was nearer to 80p when Steven Vaughan arrived, I would have to agree with the tech whiz Steven Frazer of SHARES MAGAZINE who raised his concerns at the time of the offer. He said: “But wouldn’t shareholders be better served allowing Vaughan more time to show his turnaround stuff?” I say: “What price could PHOENIX shares have achieved if Vaughan had been allowed to complete his turnaround plan?”

3) Online gambling stock BWIN.PARTY DIGITAL ENTERTAINMENT (LSE: BPTY), which I had purchased because I viewed it as extremely vulnerable to a bid and or recovery story through mobile digital gaming growth**. Less than two months after my initial BPTY purchase, GVC Holdings (LSE/AIM: GVC) confirmed that it had submitted a proposal with a view to acquiring the entire issued and to be issued share capital of BPTY. That was on Friday 15th May 2015, a mere three days later online gaming group 888 gate-crashed the party. By making its own takeover approach for BPTY, what has ensued since then is a bidding war for BPTY. After its initial £1.10p, a share proposal was trumped by 888. GVC raised its bid by offering a cash-and-share bid which values each BPTY share at 122.5 pence. GVC appears to be determined to acquire BPTY because not only would the acquisition give them additional scale, the reverse takeover would give them a full LSE FTSE listing.

**See my @conkers3 March 13th 2015 tweet.

Some would describe trading or investing in stocks and shares as gambling. Having participated in the stock markets since 1995, I have to agree that there is small element of truth in that appraisal. In actual fact, as you may have realised yourself, it is not quite so simple. There is a whole world of research that is required before any decision to purchase a stock or share, such as: the company history, integrity of the Board, the micro and macro economical market conditions, debt levels, growth opportunities and even market sentiment.

With that in mind, one also has to know when to hold or when to fold. Having made my BPTY purchases at 81.5p and 88p I trimmed some at £1.172p and then sold the rest recently at £1.157p***

Some of you reading this blog will be asking “Why have you sold before the conclusion of a deal?”

Because sometimes even a takeover premium is not enough!!!!

***GVC is reportedly facing a multi-million dollar legal claim after Canadian sports and entertainment consultancy 37 Entertainment accused them of reneging on a deal as a result of its ongoing pursuit of BPTY.

As I concluded this blog entry, a fourth “take under” year to date could be commencing. I will tell you more about this soon.

That is all from me today, time to get to ready and go out to celebrate my birthday.

See you all soon.


“Don’t lower your expectations to meet your performance. Raise your level of performance to meet your expectations”. 

Ralph S. Marston Jr. Author and Motivator

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