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iSelect Ltd (ASX:ISU) shares rocket on takeover approach news

The iSelect Ltd (ASX: ISU) share price has had a stunning start to the month and has rocketed higher in early trade.

At the time of writing the price comparison company’s shares are 15% higher to 72 cents.

Why are iSelect’s shares on fire today?

This morning the company acknowledged yesterday’s lodgement of a substantial holder notice by IHA Group which revealed that it had acquired a 12.2% interest in the company over the last six weeks.

This rampant buying resulted in speculation in the media that iSelect could be a takeover target.

Well this has proven to be accurate. Management also confirmed that it has received several unsolicited and non-binding proposals from both listed and unlisted parties in relation to mergers and change of control transactions.

According to the release, the board is busy reviewing these approaches and assessing their merit. However, it has warned that there is no certainty that a transaction will eventuate from these preliminary proposals. No financial terms have been disclosed.

The company has appointed both Allier Capital and Goldman Sachs as financial advisors and Herbert Smith Freehills as its legal advisor.

What is IHA Group?

IHA Group is controlled by companies associated with BHL Holdings, which itself is the company behind iSelect’s rival Compare the Market.

It appears to have seen an opportunity to make a play for iSelect after its incredible share price decline over the last 12 months. Prior to today, iSelect’s shares were down over 70% in the space of a year after a disastrous trading period.

While a potential takeover would be great news for short term shareholders, it would be a big disappointment for those that have held its shares for a longer period. Especially given how the company knocked back a $2.00 takeover approach just a few years ago.

Should you invest?

I wouldn’t suggest investors rush in to pick up shares today in hope of a substantial takeover offer. There’s no guarantee one will be accepted or that it will be notably higher than the current share price, thus it could lead to its shares sinking lower again.

Instead, I would continue to focus on other options in the online space such as Carsales.Com Ltd (ASX: CAR) or SEEK Limited (ASX: SEK).

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Motley Fool contributor James Mickleboro owns shares of SEEK Limited. The Motley Fool Australia has recommended carsales.com Limited and SEEK Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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