How to read the financial pages

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11. Takeovers and mergers

News of a takeover involving a listed company, whether true or false, can have a dramatic effect on the share price of both the acquiring company and the target.

• Traditionally, to get control, acquiring companies have to pay a premium for the shares of the target company. The share price of the target company may creep up in expectation.
• If the market thinks the acquisition makes sense for the acquiring company, and can be pulled off at the right price, its shares may rise; conversely if the market thinks the idea is flawed, or the acquirer is going to overpay, its shares may fall.

So whether you own shares in the target or the predator, takeovers are interesting. The financial pages can help you in two ways:

1. As early warning radar

   The press love to speculate on possible takeovers. The Times has a 'Rumour of the Day' piece, and market journalists are at their happiest making predictions about impending bids. For instance:

   "Shares of KS Biomedix surged 16p yesterday to 680p. There may be further upside . . . Kim Tan, the founder, is believed to be looking for an exit route and it looks like a bid of up to £10 a share may not be too far off."

   The Times, 18.7.2000

   Read these pieces, by all means. They're fun. Maybe even stick some spare money in 'target' companies and see what happens. But don't base your investing strategy on them.

2. To guide you when a bid is in progress

   The Financial Times lists all current takeover bids and mergers in its Saturday edition. It tells you the name of the target company, the value of the bid per share, the current market price, the pre-bid price of the target, the total value of the bid, and the name of the bidding company. For example, the edition of 9th September listed:

   Target	Bid	Mkt	Pre-bid	Total value	Bidder
   SmithKline Beecham	880	876.5	847	49.41bn	Glaxo Wellcome

   Newspapers can offer useful guidance on whether shareholders in a target company should accept or reject a bid. Management of both target and bidding company will send you documents putting their case, and both will be persuasive.

   In this situation, press commentary has enormous influence and can be quite helpful. You should certainly follow the progress of the bid in the press and read what journalists have to say, even if ultimately you do not take their advice.

1. What are the financial pages? 2. What to look for 3. Business news 4. Share prices in newspapers 5. Investment trust prices 6. Share prices on the internet and television 7. Commentary on share price movements 8. Anticipating company results 9. Finding company results 10. Interpreting company results 11. Takeovers and mergers 12. Indices 13. Sectors 14. Directors dealings 15. Unit trust information 16. Government bonds 17. Corporate bonds 18. Economic data - who needs it? 19. Key economic indicators 20. Conclusion

• How to Read the Financial Pages
• Eat The Rich