Morrisons - recommended takeover offer
Posted: July 3rd, 2021, 12:28 pm
The Morrisons directors are recommending a takeover offer at 254p/share (2p of which is to be paid as a special dividend and the other 252p as a capital payment for the share). This makes the company pretty likely to be taken over - it could in principle be rejected by shareholders, but it's quite rare for the big shareholders to go against director recommendations. I.e. a takeover seems very likely to happen in practice, making it a matter for this board (unlike an earlier takeover approach at 230p/share, which was rejected by the Morrisons directors a couple of weeks ago and discussed on the company share news board). This new offer is also being discussed there (see viewtopic.php?p=424358#p424358), but practical HYP-specific discussion may be more appropriate in this thread...
One point I would make is that with both a recommended bidder and a rejected bidder who might come back with a higher offer, there may be the potential for a bidding war here. So if the share price wanders above 254p, don't think that this takeover is pretty inevitable and the market is irrationally offering you a bonus over its 254p value: the truth is that a takeover is pretty inevitable, but not necessarily this takeover. If that happens, it might of course still be worth selling at the market price just to get it over with and avoid the possibility of getting less than you could because no higher bid emerges, but do be aware that it also misses out on the possibility of getting more than you could because a higher bid does emerge...
For me and assuming this takeover goes through this year, Morrisons is going to be one of HYP's financial successes: an internal rate of return (XIRR) of 9.5-10.5% (depending on how soon it goes through), which is produced by total dividends of about 15% of the total I've invested in the holding, plus capital gains of about 30% of that total invested. But that overall picture conceals some significant details:
* Back in 2013 and 2014, I invested about 45% of the total I've invested, at prices varying from 159.24p to 274.57p and averaging 224.57p. That produced about 39% of the shares in my holding, and those shares have produced dividends totalling about 30% of the amount invested in them, plus a capital gain of about 13% assuming the takeover goes through at 254p, for about a 43% total return. For an average holding period of about 7.5 years, that annualises to about 4.9% per year - not a disastrous rate of return for a HYP share, but definitely rather disappointing. (And the reason for that disappointment isn't hard to find: Morrisons cut its dividend by nearly 2/3rds in 2015/2016 and it was still at little more than half of its pre-cut level this year.)
* Late last year, I decided to top up my holding of Morrisons significantly and in February, I topped it up a bit more. Those top-ups used the other ~55% of the total I've invested to buy the remaining ~61% of the shares in my HYP's holding, at prices varying from 171.80p to 179.59p and averaging 178.48p. Again assuming the takeover goes through at 254p, that's an average capital gain of about 42% over a average period of less than 6 months, which annualises to a rate of capital return of over 100% - and there's also been a 5.11p dividend paid, boosting that massive rate of return a bit more.
So what would appear on the overall figures to be a very satisfactory rate of return on a HYP share that I've held for over 8 years turns out on further analysis to actually be a blend of a disappointing rate of return on a decently long-term holding and a stupendous (but clearly unsustainable!) rate of return on an unintentionally-short-term holding... An object lesson in how many of the statistics we quote on this board can end up being rather misleading about how HYPs perform!
Gengulphus
One point I would make is that with both a recommended bidder and a rejected bidder who might come back with a higher offer, there may be the potential for a bidding war here. So if the share price wanders above 254p, don't think that this takeover is pretty inevitable and the market is irrationally offering you a bonus over its 254p value: the truth is that a takeover is pretty inevitable, but not necessarily this takeover. If that happens, it might of course still be worth selling at the market price just to get it over with and avoid the possibility of getting less than you could because no higher bid emerges, but do be aware that it also misses out on the possibility of getting more than you could because a higher bid does emerge...
For me and assuming this takeover goes through this year, Morrisons is going to be one of HYP's financial successes: an internal rate of return (XIRR) of 9.5-10.5% (depending on how soon it goes through), which is produced by total dividends of about 15% of the total I've invested in the holding, plus capital gains of about 30% of that total invested. But that overall picture conceals some significant details:
* Back in 2013 and 2014, I invested about 45% of the total I've invested, at prices varying from 159.24p to 274.57p and averaging 224.57p. That produced about 39% of the shares in my holding, and those shares have produced dividends totalling about 30% of the amount invested in them, plus a capital gain of about 13% assuming the takeover goes through at 254p, for about a 43% total return. For an average holding period of about 7.5 years, that annualises to about 4.9% per year - not a disastrous rate of return for a HYP share, but definitely rather disappointing. (And the reason for that disappointment isn't hard to find: Morrisons cut its dividend by nearly 2/3rds in 2015/2016 and it was still at little more than half of its pre-cut level this year.)
* Late last year, I decided to top up my holding of Morrisons significantly and in February, I topped it up a bit more. Those top-ups used the other ~55% of the total I've invested to buy the remaining ~61% of the shares in my HYP's holding, at prices varying from 171.80p to 179.59p and averaging 178.48p. Again assuming the takeover goes through at 254p, that's an average capital gain of about 42% over a average period of less than 6 months, which annualises to a rate of capital return of over 100% - and there's also been a 5.11p dividend paid, boosting that massive rate of return a bit more.
So what would appear on the overall figures to be a very satisfactory rate of return on a HYP share that I've held for over 8 years turns out on further analysis to actually be a blend of a disappointing rate of return on a decently long-term holding and a stupendous (but clearly unsustainable!) rate of return on an unintentionally-short-term holding... An object lesson in how many of the statistics we quote on this board can end up being rather misleading about how HYPs perform!
Gengulphus