Rumours of a takeover bid sent the Webjet Limited (ASX: WEB) share price flying higher this morning.
Shares in the online travel booking website operator surged 6.7% to $12.44 at the time of writing even as management downplayed the prospects of a takeover. In contrast, the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index gained 0.3%.
Management issued a statement in response to media speculation that an investment bank is pitching the company to overseas buyers. While management didn’t deny it receives interests from bidders from time to time, it stated that no compelling proposal exists at present.
Fuelling the M&A fire
That only seemed to excite investors more. This is probably because management didn’t deny takeover interest outright. Not saying “no” means a “yes”, or at the very least a “maybe”.
The Australian Financial Review reports that Goldman Sachs’s mergers and acquisitions (M&A) team is doing the rounds to test appetite for a buy-out of Webjet this morning.
Webjet needs all the love it can get. The stock is underperforming after its near 30% plunge since May this year. Webjet is currently up around 13% since January when the broader market is powering ahead by around 20%.
Mind you, it’s not the worst performer in the sector. The Flight Centre Travel Group Ltd (ASX: FLT) share price is on a tiny 1% gain while the Corporate Travel Management Ltd (ASX: CTD) share price tumbled 9% over the same period.
Hope that Goldman can dig out some offshore private equity buyers with at least a $2 billion war chest could be enough to trigger a turnaround in sentiment towards Webjet.
Turn in sentiment
The company issued what I considered to be a pleasing update at its annual general meeting four weeks ago. The update sent the stock jumping but gravity soon pulled the stock to under $12 a share.
Something suddenly becomes more valuable when you think others want it too. This is the case for Webjet and the stock is likely to stay above $12 in the interim unless some unexpected bad news emerges.
The sector has been under a cloud from weak consumer spending – particularly towards larger discretionary purchases. The falling Australian dollar isn’t helping as overseas holidays are getting more expensive.
Unless consumer sentiment improves markedly soon, the sector won’t enjoy much of a tailwind going into 2020 – apart from M&A interest.
I think Webjet’s fundamentals are good but I won’t buy a stock just based on takeover hope. The prospect that it’s a possible target is just cream – and who doesn’t love some of that!
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The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited and Flight Centre Travel Group Limited. The Motley Fool Australia has recommended Webjet Ltd. 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.