A spate of takeover talk has distracted dealers from a downbeat start to the week, as global concerns send leading shares lower.
Banknote printer De La Rue has soared 152.5p to 800p, up 24%, after the troubled banknote printer confirmed it had received "a highly speculative" bid approach. The offer, thought to be around 750p-800p a share, is believed to come from French rival Oberthur Technologies. De La Rue ran into trouble recently with production problems with banknote paper for a key customer, thought to be the Reserve Bank of India, amid allegation of staff falsifying quality certificates. Paul Jones at Panmure Gordon said:
We believe this represents a fair level given our ongoing concerns regarding reputational damage. As we await further details, we switch our recommendation from sell to hold and raise our target price from 470p to 800p.
We have suspected for some time that any interest in De La Rue would only come from a competitor given the problems any private equity firm would face in due diligence given the nature of the business, and despite the market position and scarcity of the asset we believe it unlikely this will become a bidding war.
If such a bid were to happen the bidder may be looking for debtholders to take a 'haircut' - this would normally not be good news for equity. The value of head office cash is around 26p per share we believe.
Due to the complexity of debt arrangements any such bidder might need superior understanding of the company - this would point to a bid backed by previous management or founding shareholders.
We believe such a bid for the whole Punch Group is unlikely to materialise unless it comes from a 'specialist' - as such the mention of TPG is of interest. On a different note, these rumours suggest there may be a new floor for the shares around the 50p-60p mark, i.e., when/if the shares descend to these levels bid rumours are likely to emerge.
This speculation in the mid-cap sector has helped lift the FTSE 250 by 18.91 points to 11,101.08. But the FTSE 100 is down 10.31 points at 5735.01. Hints by Federal Reserve bank chairman Ben Bernanke that a third round of quantitative easing may be needed have re-ignited worries about the state of the US economy, especially in the wake of Friday's disappointing non-farm payroll numbers. Signs that the European's may not be united in their solutions to the current debt crisis are also undermining sentiment, with European credit default swaps - the cost of insuring against default of sovereign debt - rising and bond yields rising.
