Reflections on a takeover bid

[Newroad]

Evening All.

As many of you are no doubt aware, there has been a takeover battle for SMDS. Initially, MNDI made a takeover offer which was trumped by IP (US-listed International Paper).

I am used to investing in Investment Trusts and ETF's - only in the last couple of years have I invested in individual companies as part of a P-HYP (Pseudo HYP) experiment. Hence, via my holding in SMDS (and MNDI also, coincidentally) this is the first time I have had direct exposure to a takeover battle.

As we sit here now, I retain my holding of c600 SMDS shares, which keen observers will understand means I have currently left a little over £400 on the table, though MNDI has recovered somewhat mitigating that a bit. I am OK with letting things continue to play out and finish where they will, which would arguably be consistent with some HYP purist approaches - it's relatively small beer. However, there must also be an argument that I could/should have done something nearer the short term peak, as some did as noted here:

https://www.lemonfool.co.uk/viewtopic.php?f=33&t=42386&hilit=smds

Hence the question I'm reflecting on, especially if it's a more substantial amount at stake next time, is should I have and if so, what?

Where I'm currently at is that in all-scrip takeover battles, it's probably wise to do something when the second bidder comes formally into play (I think it is different when its mostly/all cash, where changes in the share price of the winning bidder or withdrawal of the losing bidder is less likely to have a material impact - probably just hold in this case). My line of thinking is that, were the situation to rhyme in the future, to

Place a trailing stop sell order, probably market not limit
At a discount of either 5% or 10%
For either 50% or 100% of the holding

I've done some investigation of the price movements during the large drop on 19th April and whilst from a high level, it appears to gap lower, there were actually ups and downs during the day. This suggests that once the stop-loss is triggered, you can probably get out at or very close to the price. If I faced the situation tomorrow, I would probably choose to put a 10% trailing stop loss market order for 100% of the holding. I have looked closely at how to place such an order on IBKR - seems straightforward enough and I am now prepared for next time.

Anybody else ruminating on this - with similar or different thoughts?

Regards, Newroad

[torata]

Thinking back, I could have set up a spreadsheet to monitor the effective price of the mondi offer vs the actual price in the market. If so, I probably would have sold, purely opportunistically.

(For me similarly, another lucky and successful example a few years back was when someone on these boards mentioned the large upward gap between price and NAV of Tritax Bigbox, which prompted action. I hadn't been actively monitoring that gap. Now I pay more attention. Although this example is perhaps closer to the occasional rebalancing I practice a la HYP / TJH.)

torata

[Gerry557]

£400 in the scheme of things isn't that much really. Even a low cost broker might be 1% in selling fee.

So if you get cash from the offer it might pay to wait. Alternatively it might fail and you are back to where you were.

I think there is a saying sell on the rumour.... I suppose then if it fails you can buy back more shares.

If they are offering shares as part of the deal, do you want them. If you sell what would you do with the cash.

Buying and selling might cost you a few percentage in fees

[Newroad]

Hi Gerry.

I'm not that bothered this time around - as you and I have observed, it's a relatively small amount.

The point remains, is there anything I (and perhaps others - I reckon there were and still are plenty of SMDS holders on the forum) can learn about this type of scenario. I don't mind being caught unprepared once - but if I got caught out again, I would be annoyed at myself.

Regards, Newroad

[kempiejon]

However, there must also be an argument that I could/should have done something nearer the short term peak, as some did as noted here:

viewtopic.php?f=33&t=42386&hilit=smds
That's a good anecdote. Does it count are a rule?
In my investing tenure these sorts of things have cropped up but not often or similar enough for me to have bothered making a plan. For tax planning when I have an intention to sell shares I have used limit orders. Some time in January I set a sell order if any one my shortlise breaches a recent high. If they don't I can sell in March at prevailing prices. For some takeovers I have found I've been left holding shares I didn't want to buy in the first place this has sometime been a good outcome other times less so. I'm now generally a do nothing buy and hold indifferent investor. I used to work hardr for higher reward but found it stressful and I'm not sure I wasn't just lucky.

I think there is a saying sell on the rumour..

I was thinking that idea too, I couldn't find an example, the counter is out there

Buy the rumour, sell the news' is a well-worn expression, and in the context of trading, it means that if good news is expected sometime in the future, the price will often move higher in anticipation of that date, but not necessarily after.

Here's another anecdote, Anglo American shares are up 20% following the announcement that BHP is interested in making a bid. AAL rebutted them saying it undervalues the company. I uncharacteristically sold my AAL as I'm gathering some cash in my SIPP. I sold them days before the announcement.

[Gerry557]

I think that you just have to take things on the chin sometimes.

It could be worse you could be forced to sell whilst being underwater, so forced to sell at a loss

Recently I had a reit that didn't want to continue so sold for less than NAV. I would have been happy it continuing as is or a merger with another reit. In hindsight it might have been better selling the lot when announced and finding a better home for the cash.

I also had some Talktalk that was sold out and I lost out on that one.

I suppose don't buy shares is the only way to avoid the situation

[tjh290633]

If a takeover bid is going to leave me with shares that I do not want, I sell in the market before the event at a time of my choosing. The same applies to shares that go private.

Takeovers for cash are different. I prefer to sell in the market rather than wait possibly several months before the deal is effective and the cash is paid.

TJH