Tuesday, November 22, 2005
Fayrewood takeover talks collapse
Earlier this year my portfolio was boosted on the announcement that Fayrewood, the IT hardware distributor had been approached by a party interested in buying out current shareholders. Today the company announced no takeover would be happening and the shares fell 5% on confirmation no big walleted corporation would be making an offer.
This is the second time in 2005 that a company in my portfolio has seen takeover talks scrapped and remained independent. On both occasions it has proved damaging to returns. In July, Chaucer announced talks with Amlin were off and the shares fells from 70p at the height of takeover speculation to 52p in the aftermath of Katrina.
Not selling Chaucer in the high 60s was a huge mistake. At the time, the shares easily exceeded my estimate of fair value and a number of opportunities to reinvest the money elsewhere were missed. With Fayrewood however, the market was never particularly excited by the discussions and the shares never got near my target sell price. So, I probably got Fayrewood about right but Chaucer wrong.
With today's disappointing news, Fayrewood announced continued strong trading and the promise to significantly increase the shareholder dividend. This helped put a floor on the shares and they closed the day 4.5p lower at 107p to sell.
Chaucer, on the other hand, is revelling in the market's new found faith in insurers' profitability. 2005's exceptionally severe hurricane season has set the industry up for a prolonged period of higher premiums, just as rates were starting to fall from cyclical highs and all expected an insurance recession, profitability is increasing in the wake of Katrina, Rita and Wilma.
The Artful Dodger
This is the second time in 2005 that a company in my portfolio has seen takeover talks scrapped and remained independent. On both occasions it has proved damaging to returns. In July, Chaucer announced talks with Amlin were off and the shares fells from 70p at the height of takeover speculation to 52p in the aftermath of Katrina.
Not selling Chaucer in the high 60s was a huge mistake. At the time, the shares easily exceeded my estimate of fair value and a number of opportunities to reinvest the money elsewhere were missed. With Fayrewood however, the market was never particularly excited by the discussions and the shares never got near my target sell price. So, I probably got Fayrewood about right but Chaucer wrong.
With today's disappointing news, Fayrewood announced continued strong trading and the promise to significantly increase the shareholder dividend. This helped put a floor on the shares and they closed the day 4.5p lower at 107p to sell.
Chaucer, on the other hand, is revelling in the market's new found faith in insurers' profitability. 2005's exceptionally severe hurricane season has set the industry up for a prolonged period of higher premiums, just as rates were starting to fall from cyclical highs and all expected an insurance recession, profitability is increasing in the wake of Katrina, Rita and Wilma.
The Artful Dodger
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