- The Go-Ahead bid now seems to be final
- But it will take two months to get the cheque
- Is the decision to wait or sell in the market now?
The bid for Go-Ahead (LON: GOG) is now finalised and there’s a profit margin to be had there. The question is, well, is it worth it? For it is not actually true that a slim margin is in fact a profit. Certainly it isn’t in an inflationary environment and that’s before we even get to more complicated factors like opportunity cost.
The Gerrard Investment Bidco Company – owned by Kinetic and Globalvia – has now succeeded in its bid for Go-Ahead. It’s reached the stage where no, there will be no other bidders, all that is going to happen now is the nuts and bolts of how the actual ownership changes hands. From us out here who are Go-Ahead shareholders to recipients of a cheque. The thing is there is sometimes a decent enough margin in such events. Our task now is to try and work out whether this is true right now, in this specific bid.
The answer is that there’s a nominal profit to be had but it is rather fine. So fine that once we look at other costs it’s almost certainly not worth having. But it’s also true that the current price might not hold all the way to completion. So it’s something to monitor to see whether that very fine margin widens out to something worth doing over the next 6 weeks or so.
The price on offer is, as they say: “1,550 pence for each Go-Ahead Share, comprising 1,450 pence in cash and a special dividend of 100 pence per Go-Ahead Share“. So, that’s the takeout price, 1550p. The current price is 1542p (or, with the spread, 1544 to buy) per Go-Ahead share. There’s a 6 to 8p profit there – buy and simply wait for the cheque to be posted.
But the question is, is this worth it? For the timetable is:
Latest date for despatch of cheques and crediting of CREST accounts and processing electronic transfers for cash consideration due under the Scheme and payment of the Special Dividend
By 24 October 2022
No, it’s probably not worth it. Just to keep our maths easy, say inflation is 12% currently (it’s more like 10% which is close enough for metal arithmetic). That means we lose 1% of our money each month it’s not earning. The profit here, that 8p, is 0.52% of the sum we’d have to invest. But we’ve got to wait 2 months to get that cheque. So, we’d make a nominal half a per cent and also lose two percent to inflation on Go-Ahead. That’s a net loss in real terms even as it’s a nominal gain. It gets worse too – taxes are paid on nominal profits, not real after inflation.
The other way to do this is to think of how low does the price have to get before it’s worth it to us? The answer is 1529 – because 2% of 1550 is 31 p (it’s possible to refine this and work out the percentage of purchase price but really, there’s little point) and so that’s what the price gap has to be for it to be worth our buying and holding to gain the takeover cheque. That’s before taxes too.
The importance of doing this calculation isn’t so much to work out whether it’s worth trying to ride this bid. Rather, really, it’s the other way around. By holding current shareholdings in Go-Ahead to the maturity of the bid we will lose 1.5% of our capital to inflation. So, sell the holdings in the market and have the cash to redeploy – that’s what the numbers say, anyway.