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Go back almost a year to May 25, 2023 and the International Distribution Services (LSE:IDS) share price languished at a 52-week low of 191.2p. On Friday (May 10), shares in the owner of Royal Mail closed at 280.2p. What has caused this almost 47% increase in share price?
The IDS is 'in play'
On April 17, shares of International Distributions Services soared when news of a foreign takeover bid emerged. Although this offer was quickly rejected, the bidder could return by the middle of next week.
The possible owner of this 508-year-old British institution is billionaire Daniel Křetínský and his EP group. Křetínský, nicknamed the 'Czech sphinx', has earned a reputation for making big, bold European acquisitions.
Priced at 320 pence per share, their initial proposal valued this FTSE 250 firm at £4.5bn, a premium of around 50% to the previous day's closing price. But after administrators rejected the offer, Křetínský has until May 15 to return with an improved offer.
The Mergers and Acquisitions Handbook
What generally happens in mergers and acquisitions? FTSE 100 and the FTSE 250 playbook is that the putative bidder returns with a second highest bid.
This can be accepted or rejected, perhaps triggering a third round of talks. Additionally, sometimes this auction process causes other interested buyers to jump into the ring.
Clearly, for Křetínský to have any chance of winning over the company's directors and major shareholders, it will have to come back with an offer price above 320p. But what if his second offer also fails?
Whats Next?
If the two parties do not come to an agreement on an agreed valuation for this business, then the auction could fail and both parties would walk away. Under UK Takeover Panel rules, this would prevent Křetínský from returning with a follow-up offer for six months.
Generally, when takeover bids fail, the target's stock price usually follows suit. Therefore, the stock price seems like a binary bet to me at the moment. If a deal can be reached, the stock could rise. But if no offer is accepted, the stock falls.
With a 27.5% stake, Křetínský is already the largest shareholder of International Distributions Services. However, it cannot force the board of directors to accept what it considers an inferior offer. Therefore, I suspect an offer close to, say, £4 will be necessary to seal any deal.
Schrödinger's actions?
That said, this would be a 25% increase on Křetínský's initial offer of 320 pence per share. And if it were to move away, the decline could be quite steep for this stock. But it may be very interested in acquiring GLS, the company's highly profitable European logistics business.
Meanwhile, talks between the two sides continue with the all-important deadline approaching midweek. Therefore, it seems to me that the IDS share price is in a position similar to that of Schrödinger's cat. Right now it might be more worth it for both of us. and Less than the current price, depending on next week's outcome!
