The current report discusses the status of the bid that Fenton has made for McPhee Food Halls. Since the initial bid, the price of McPhee shares has increased while the price of Fenton shares has decreased. This report will outline the different financial assumptions and costs of the original bid, and compare that to the current situation. The objective of this report is to provide the necessary information
When the decision to bid for McPhee was originally made, that company's stock had already increased from £4.90 to £5.80, its 12-month high. It is believed that speculation regarding a possible takeover contributed to this run up in the share price. Nevertheless, we made an offer of 8 shares for every 10 of their shares. Our shares at the time were £8.00. Thus, the deal was valued as follows:
(8)(8) = (10)x or £6.40 for each McPhee share.
After the deal was announced, the prices moved towards equilibrium. Our price went to £7.90 while the price of McPhee shares went to £6.32:
(8)(7.9) = (6.32)(10)
£6.32 = £6.32
There were concerns expressed in the media and among market participants that Fenton would not gain the expected synergies with McPhee, but at the end of the day the new prices for both firms were based on a new equilibrium point. This is the position we are in today. It is important to consider whether or not a further increase in the bid will result in deterioration in the stock price. It is worth keeping in mind that at this point, we do not