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Servcorp Limited rejects takeover offer from Regus

Recent rumours that Servcorp Limited (ASX: SRV) was approached with a takeover offer have accompanied a steadily rising share price.

The Australian Financial Review reports that company’s major competitor, Regus  (LSE: RGU), made an offer for the company, but was rebuffed. The AFR also suggested that “Shareholder support for a credible approach would… seem firm,” although I don’t see any evidence to support that proposition. Servcorp’s business is leasing premium office space to other companies.

The founding Moufarrige family own the majority of Servcorp shares, and sons Marcus and Taine are both involved in the business. It looks to me like the founding family want to keep control of the entity, and I don’t see why they would part with the family business for anything less than an enormous premium.

Indeed, it is arguable that the new generation of Moufarriges give the business an edge. Marcus is known to be a proponent of the virtual office services offered by the company. This is an important part of the business in my view, because it can generate higher margins and demonstrates that the company is continuing to innovate.

Don’t bet on a Servcorp takeover

At any rate, the reports in the Australian Financial Review support the suggestion that the market undervalues the company. However, it’s worth noting that Servcorp hasn’t formally mentioned any approach. That suggests that either the directors did not think the approach was price sensitive, or that the reports are inaccurate. Either way, investors shouldn’t bet on Servcorp becoming a takeover target.

As I wrote in this article, the fact that Alf Moufarrige continues to lead the company is a key part of my investment thesis. I believe that, in this case, the founding family is emotionally invested in the performance of the company. I recommend interested investors have a look at Servcorp’s annual reports — I’m yet to find a series of reports that emanate such character. It’s a joy to read them.

Foolish Takeaway

Shareholders in Warrnambool Cheese (ASX: WCB) have watched their shares rocket 80% in two months after a bidding war for that company broke out. We don’t know how that story will end, but retail investors could already have sold at a handsome profit. However, this kind of corporate action is the exception rather than the rule. While unlikely to become a takeover target, Servcorp should nonetheless perform well as its American floors mature.

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Motley Fool contributor Claude Walker owns shares in Servcorp. 

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