MIDAS SHARE TIPS UPDATE: Sit tight and look to profit as second Lavendon bid arrives to deliver a 62% gain
This column has been updated from Sunday's Midas update after a second Lavendon bid from Loxam arrived today.
Equipment hire specialist Lavendon, which helped to install the Christmas lights in London’s Regent Street, has had an exciting week.
On November 21, the company’s share price closed at 139p. The following day, the stock soared to 197p. The reason was a 205p-a-share cash bid from Belgian equipment and parts group TVH.
This morning, the price has soared even further to 218p, following news that French group Loxam is in talks with Lavendon about a possible rival offer. The news has injected fresh excitement into this saga – and substantial potential gains for shareholders.
> This week's Midas tip: Mercia
Lighing up: Equipment hire specialist Lavendon, which helped to install the Christmas lights in London’s Regent Street, has had an exciting week
Currently, the TVH bid is the only firm offer on the table. And it has not been recommended by the board, primarily because certain large shareholders think the price is too low.
These include investment manager M&G, which holds almost 19 per cent of the stock.
TVH does have support from two large investors, which own just over 12 per cent of the shares between them, and it bought a further 5 per cent in the market last week. But that still leaves an awful lot of shareholders to be persuaded.
Midas recommended the stock in April, when the price was 134p. The shares jogged along until last Monday’s offer, but they have are now 62 per cent higher than they were six months ago.
TVH has said its offer is final unless a rival bid comes along. Now there is at least a sporting chance that it will, provided that Loxam’s preliminary talks turn into a firm approach.
So what should investors do now?
Should they sell straightaway or should they wait in the hope that a full bidding war erupts?
Until this morning, most observers believed the chances of a rescue bid emerging were relatively slim. The most obvious candidate was UK equipment hire group Ashtead, which launched a joint bid for Lavendon with TVH back in 2011.
Since then, Ashtead has become increasingly focused on its American division, so there seems little reason for it to bulk out its UK business now. Private equity firms have also been touted as potential white knights, but they are famously reluctant to enter into bidding wars.
And late last week, the share price was hovering just below the TVH offer price, suggesting the market believed the Belgians were the only game in town.
Now all bets are off and Lavendon’s days as an independent company seem numbered.
The Lavendon board was even minded to accept the TVH offer of 205p a share until its biggest shareholders said they felt the price was unacceptable. So the top team are clearly not wedded to independence and now two European companies seem keen to grab this British prize.
Midas verdict: Until last Monday, Lavendon looked like a long-term hold. Now its potential has been recognised by overseas rivals, the share price has surged more than 60 per cent and it could go even higher if Loxam and TVH really lock horns. Investors should sit tight and watch closely to see what happens next.
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