Derek Pain: Takeovers are back, so let's stand by to make some money

No Pain, No Gain

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The Independent Online

In its early days, the no pain, no gain portfolio reaped rich rewards from take-over action. Before the financial meltdown, bids materialised with almost monotonous regularity.

Few investors, big or small, could avoid the corporate carnage. The portfolio, launched in 1999, was happy to pocket the cash as constituents, such as the Burtonwood pubs chain, Merrydown, noted for its cider, and supermarket group Safeway attracted take-over assaults.

Among others involved were DataCash, an on-line payments business, the Allied Domecq drinks giant, and support group MacLellan . As the banking crisis gripped the world, the bid action dried up although the portfolio enjoyed a further success when Scottish & Newcastle, the last major British brewing group still standing, relapsed into the arms of Continental brewers Carlsberg and Heineken.

Since then the portfolio has enjoyed one bid success – the take-over by brewer Greene King of the Capital Pub Co in 2011. That particular deal was all the tastier because it occurred just months after recruitment.

At long last, new bid action has emerged. Brightside, the specialist insurance group enlisted last summer, has said it is in talks that could lead to an offer. The bidder could be Markerstudy, a Gibraltar-based insurance group which already controls 9.3 per cent of Brightside.

Whether the negotiations will be concluded successfully is another matter. Markerstudy has indicated it is prepared to pay 27p a share, pricing the insurance vehicle at £123m. But, at the time of writing, Brightside shares have topped the bid price and I recall stockbroker FinnCap putting a 31p target on the shares earlier this year.

So it seems to me the Gibraltar group will have to up the consideration if it wants to win the day. Few bidders start off revealing the eventual level they are prepared to pay and I suspect Markerstudy is happy to play this time-honoured game.

It acquired its Brightside holding early this year, picking up shares from a former and a current director at around 22p a pop. The build-up followed a deal signed in October for a new underwriting facility to back Brightside's highly successful eCar internet service. Markerstudy, under the take-over code, has until the 13th of next month to come up with an offer although extra time is always a possibility. Should the 27p bid go ahead the portfolio, which paid 18.5p a time, will be more than £2,000 in profit. Not a great reward compared with some past hits but, even so, not to be sniffed at.

The possible bid for Brightside is symptomatic of higher share prices leading to an increase in stock market merger and acquisition activity. There has been a gentle build-up of take-over action in recent months with the unrequited £5.3bn approach to water utility Severn Trent topping the bill. Others in various forms of action include mining group ENRC, valued at more than £3bn, and engineer Invensys, also with a £3bn-plus price tag. Invensys has so far attracted French interest but many observers believe others are considering approaches. And there are other targets, real and rumoured, under the shadow of assorted take-over talk.

Whether the portfolio will share in any further dramatic merger and acquisition upsurge remains to be seen. I will be recruiting at least two newcomers in the next few weeks and will obviously consider any candidate's bid potential.

Of the current incumbents I suppose the likes of Essenden and the Spirit Pub Co look the more likely to attract attention. Essenden is capitalised at only £5.9m and Spirit, with its shares near a peak, at £485m.

The Whitbread leisure group could also be involved in corporate action - not necessarily a bid but a sell-off. Rumours it intends to float its rapidly expanding Costa Coffee operation have died down, but I suspect such a possibility is not too remote from chief executive Andy Harrison. Besides spending on the coffee front he is keen to increase the hotel business. Both ambitions cost money.

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