Shares rally but short-term
Published: 20 August 2008 Author: Kean Marden
Share prices have rallied sharply over the past two weeks, as a wave of takeover speculation washes over the market. In the space of three days Michael Page, Lonmin and Collins Stewart have all announced that they were in takeover discussions, and importantly all three transactions are likely to involve competitors paying cash for their prey rather than issuing shares. Investors have panicked, concluding that share prices must be too low if, despite the economic outlook, corporates are willing to buy each other at current prices.
Adecco's approach for Michael Page shocked everyone in the market, particularly the sizeable proportion of the hedge fund community who were 'short' in shares in anticipation of a further decline in the price. Analysts who had met Adecco's management over the past few weeks were understandably perplexed, given chief executive Dieter Scheiff and chief financial officer Dominic Daniel's comments that only small bolt-on acquisitions would be considered. Adecco sought a 'friendly takeover' of Michael Page at a price rumoured to be in the 350-375p range and has used recent statements to stress its determination not to overpay. In response, Michael Page highlights its promising future as an independent entity and its largest shareholder has gone on record with the view that 350-375p undervalues the business. Ultimately, the gap between what Adecco will pay and the price Michael Page's board is willing to recommend, or its shareholders will accept, seems too wide to bridge. [Editor's note: On 15 August, Michael Page announced it was ending discussions with Adecco.]
August is traditionally a quiet month for the stock market and improbable rumours can often emerge in this vacuum. As share prices spiked following Adecco's approach for Michael Page, journalists at The Independent concluded that Randstad was eyeing Hays and would make a formal approach in the near future. With Ben Noteboom [Randstad CEO] and co currently undertaking the arduous task of integrating Vedior, there is no way that Randstad would stress its balance sheet and management team further with another major acquisition.
Although share prices are rallying, the trading outlook is clearly becoming more challenging. Unemployment rose in July at the highest rate since December 1992, the monthly REC/KPMG Report on Jobs flagged declining perm placements (at the fastest rate since 2001) and a temp slowdown (the first fall in temporary vacancies since the survey began). There are signs that the booming Australian labour market may also be grinding to a halt. All evidence points to difficult trading updates from staffing agencies in the autumn.
Kean Marden, head of UK research, Kaupthing Singer & Friedlander.
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