A potential bidding war by Kerry Stokes for Consolidated Media (ConsMedia) (ASX: CMH) appears unlikely to emerge, with fellow billionaire Rupert Murdoch securing a $3.45 per share deal.
With James Packer busy negotiating to expand casino operator Crown Ltd (ASX: CWN) into the Sydney market, ConsMedia — the last remaining Packer family media asset — is being cashed in. There is some market chatter that this cash could be used to attempt a tie-up with Star Casino owner Echo Entertainment (ASX: EGP).
Through his investment vehicle, Seven Group (ASX:SVW), Kerry Stokes has a 25% interest in ConsMedia and a significant shareholding in media company Seven West Media (ASX: SWM). Given the structural issues facing free-to-air television and newspaper and magazine publishing, there were obviously reasons for Stokes to diversify into pay television.
However, investors who bought into ConsMedia on the expectation of a higher offer emerging from Stokes have not been rewarded. In fact, the original non-binding offer price from News Corp of $3.50 has actually being reduced to $3.45, although a 6 cent dividend has been declared.
Investing in takeover situations is fraught with difficulties and rarely a sure thing. Careful analysis needs to be made before purchasing a company on the expectation of a higher offer emerging. While Packer may be getting cashed up for a tilt at Echo Entertainment, apart from all the regulatory issues surrounding such a move, ultimately outsiders just don’t know what Packer will do. This makes a purchase of Echo shares based on the potential for a takeover, a speculation rather than an investment.
Alternatively, surf wear company Billabong (ASX: BBG) currently has two bidders vying for control, with both private equity firms lodging identically priced bids. A situation such as this could lead to the emergence of a higher offer.
The Foolish bottom line
Allocating a small percentage of your portfolio to takeover situations can boost your overall returns if stocks are intelligently selected, but Fools need to make sure they are acting as investors and not as speculators.
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Motley Fool contributor Tim McArthur owns shares in News Corporation. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.