Photo-Me (LON: PHTM) shares fell on the news that the bid for the company had lapsed. This is entirely normal of course, a bidder goes away and we’d expect a share price to fall. However, Photo-Me shares have fallen less than we might think they should in such circumstances and are making at least a small recovery this morning. So, what’s going on here?
The answer might well be found in the specifics of what type of bid this actually was – it was a mandatory bid for Photo-Me that is. This is a little odd, that someone actually has to – has to – try to buy the company but that’s the way the rules work sometimes.
The rules- or at least this set of them – are there to protect us, us individual shareholders, from dominant ones in any particular company. So, folk who build a stake above a certain level must declare that they have done so. If they make an offer to buy the company then they must accept, and pay for, all the shares they’re offered. This sort of thing. One of the rules is that if you’re a dominant shareholder, described as someone with more than 29.99% (so, really, 30% or above) then there are controls on how you might increase your stake.
You can buy more shares, that’s possible, but only to 1 or 2% of the total issuance in any one year. If you decide to try to increase the 30% or above stake by more than that in any one year then you’ve got to make a bid for all the shares – a mandatory bid for the whole company.
This is exactly what happened at Photo-Me. Tibergest (which is effectively Serge Crasnianski) held, along with anyone working with it, some 36% or so of Photo-Me. They had increased the stake to this much by purchasing some 7 or 8% of the company. Therefore a full offer for the entire company must be made. Which it was. That has now failed as they gained only another 8% or so of the company in acceptances. So, the bid fails, the Photo-Me share price drops.
What we’re interested in though, because we’re traders, is what happens next? Well, one thing we can say is that Tibergest thought that Photo-Me was worth more than the price they were offering (75p). That’s why the offer was made of course. It’s also true that Crasnianski is the CEO of Photo-Me so we might think he’s got a pretty good idea of the correct valuation of the company. And then there’s the point that well over half the shareholders thought that 75p was too low a price to be selling the share to Tibergest at.
That is, we’ve significant evidence that a lot of people think Photo-Me is undervalued at its current price of about 63p. Our decision as traders is, well, who do we believe? All the people not buying Photo-Me at 63p or the people who refused to sell at 75p?
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Tim Worstall is a freelance writer specialising in economics and the financial markets.