Key points:
- Arden Partners has cleared the way to the takeover by Ince
- That Arden will no longer have NOMAD status is not a dealbreaker
- Is it worth trying to arbitrage this?
- Leverage in The Stock Market | What It Means And How To Use It
Arden Partners (LON: ARDN) shares have not done well since the takeover by Ince was announced last autumn. That’s in large part because it’s an all share takeover, and the Ince (LON: INCE) share price has not done well. In fact, both have about halved since the takeover was announced, which isn’t what we normally expect to see. So much for that idea that takeovers increase shareholder value then.
The background here is that Ince is a legal and professional services group. Arden is a small and mid-cap investment banking house. The claim is that there are obvious symmetries in this business, and having the two in-house will increase shareholder value. Which could even be true.
The problem has been that Arden is a NOMAD – that is, someone who can be trusted, by the Stock Exchange, to keep an eye on those small and mid-cap companies that are on the market. A change of control can lead to that status being lost. The adjudication from the Stok Market itself was that this takeover would indeed lead to the loss of that status. Ince itself does not qualify to be a NOMAD, Arden would lose the status by being under that control.
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This threatened to be a deal killer. But Ince and Arden have worked through this, and now the deal is to go ahead.
What isn’t so happy is that the share prices of both Arden and Ince have fallen mightily since the original agreement. At the time of the announcement Ince was at 53p and the Arden valuation was 31p given the 7 for 12 terms of the deal. At today’s price of 27.5 for Ince today that gives us an Arden price of 16p. Given that the Arden price is at 14.48p maybe this is therefore something to arbitrage for a small profit?
Well, yes, that’s a possible thought but there’s a problem there which is that the spread on Arden is wide. 14 to 17p for the bid/offer according to the Stock Exchange itself. Which does mean that if we try to buy in we’ll pay 17p and gain the 16p worth of Ince shares for our troubles. Locking in a loss doesn’t sound like one of those great trading strategies if we’re honest with ourselves.
Of course, it’s always possible that Ince shares will rise now that the deal is to go through. But if that’s something we think is going to happen then the trading position is to be in Ince shares directly – they’re more liquid with a smaller spread anyway (still 3p, but on a higher share price so a lower percentage). It’s also not obvious that the Ince price will rise as a result of the deal going through. For we’ve now that confirmation that the joint firm will not have NOMAD status and it’s even possible to think that it’s worth less as a result.
Arbitraging the takeover, this seems not to be a useful trade to try and make, not at current prices. Which is, we agree, a little boring but then deciding what not to do is indeed a useful investing strategy.
