De La Rue - Investor Sentiment towards M&A

Even the companies that print banknotes are having a difficult time, despite governments printing more money – De La Rue issued a profits warning in the summer due to production issues. They were in the news again this week after receiving an offer from a French rival. We consider M&A from a securities lending perspective in light of recent research from Nomura, which shows that companies have reaped rewards in terms of share price outperforming by00 21% in the month following the announcement. We look at De La Rue (LON:DLAR), Dana Petroleum, Corp (NASDAQ:GENZ), Sanofi-Aventis (EPA:SAN), Partygaming (LON:PRTY) and Betandwin (WBAG:BWIN).

Takeover offers are resurging given the cash sitting on the balance sheets of most companies after recent streamlining post credit crunch. Some high profile deals are not proceeding, such as the BHP Billiton/Potash battle. These deals can promote volatility since investors can position themselves in all sorts of ways to profit from the outcome.

If we look at De La Rue (LON:DLAR) we can see skepticism from the short sellers that the offer from Orberthur will be successful. The percentage of total shares on loan went up 30% after the news, to just under 6%. Institutional investors who lend have not expressed a view yet and are sitting still with 15.5% of the company.

It is interesting to look back at Dana Petroleum who have finally agreed to be taken over by a Korean suitor. Contrary to popular perception, risk arbitrage investors did not seem to have flooded the share register, since those funds who lend held the same holdings up until September, thereby remaining influential.

The inverse seems to be the case regarding Genzyme Corp (NASDAQ:GENZ) who were bid for by France’s Sanofi-Aventis (EPA:SAN). According to dealReporter.com the net spread on this deal is currently -2% and has been negative for the last 3 months. The bid came through in mid July and shortly after we can observe institutional investors (who lend) reducing their holdings in GENZ from 80m shares to 60m today. This means that plenty of them are not waiting around for a higher offer and are happy to sell to those who are. The latest deal intelligence from dealReporter is that GENZ investors expect SAN to continue to drag their feet for as long as possible and not increase their $69 per share offer when due to make a statement this week. Short selling is negligible in GENZ, which implies investors do not expect the deal is due to fall away completely.

Partygaming (LON:PRTY) and Betandwin (WBAG:BWIN) have yet to consummate their tie-up but have been in official merger talks since late July. It is on track (according to the company) to go ahead in Q1 2011. Funds who hold BWIN are selling out, having gone from 3.4m shares prior to the merger in lending programs to 2.4m today which is a 52 week low. The inverse is true for Partygaming with a rising ownership from these investors over a year to 14% of the firm. Ten percentof all shares are on loan, however, up from 5% a month ago.

On a macro level, according to dealReporter.com, the number of M&A deals in North America is at a year’s high of 52 even if the value of them is not.

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