Brewin Dolphin (LON: BRW) shares leapt 60% this morning on the news of an agreed and recommended takeover bid from Royal Bank of Canada. The price on offer is 515 pence per Brewin Dolphin share. That’s up 192 from pre-offer, or 60%.
The big question for us as traders is whether there’s anything left in this that we might try to arbitrage or stag. Will another bidder now appear out of the woodwork – or even, might the bid fail and thus the BRW price fall back?
Of course, that future is unknown so it’s necessary to examine the details here to try to divine probabilities over what might happen.
The bid itself is described here. RBC Wealth Management, a Jersey subsidiary of RBC, will offer 515 pence for each, fully diluted, Brewin Dolphin Share. That’s a 62% premium to the price the day before the offer was made, a 54% premium to the average volume-weighted price of the previous 6 months. That the Brewin Dolphin price is down a bit from the recent past is likely because of the effects of lockdown. Brokers did very well out of us all being at home and investing online, that effect falling back as the economy reopens more generally.
The directors intend to unanimously recommend the offer and also to urge all other shareholders to do so. It’s worth noting that the directors hold only some 0.2% of the company so their vote isn’t important, although their recommendation obviously is.
The big question for us out here is, well, what might happen to the price from here? The market price is almost exactly at that 515 offer price. So there’s no little time arbitrage that can be had – buy now and know that there’s a higher, cash, price to be had when the deal properly closes.
The other two alternatives are that another bidder emerges offering a higher price. Or, that shareholders vote against the deal and so the Brewin Dolphin price drops back again. Either are possible, of course, they are, but it is to divine the probability of either.
The likelihood of either being pretty remote really. At least that’s the information from that market price this morning. The Brewin Dolphin share price is now at the offer price. So, that wider market does not believe that there’s another likely, and higher, offer out there in the wings.
As to rejection of the offer, that 62% premium looks high enough that Brewin Dolphin shareholders are unlikely to say no and face the price dropping back into the 330 range again.
As with the directors recommending the offer, this does look like the best that’s on offer. Currently, it’s clearly the best that’s on offer but that market price at the offer is trying to tell us that the market more generally doesn’t think a better one is likely. Nor rejection come to that.
A reasonable conclusion is that the Brewin Dolphin excitement is over.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.