Following on from the writer’s previous commentary on Optimal Payments (OPAY), this article takes a look at a much bigger piece of corporate action as global oil giant Royal Dutch Shell made a £47 billion offer for the BG Group on Wednesday. Again an agreed (by management of both companies) bid, with consideration being via a mix of cash and new equity, but the magnitude of this deal is dramatically different – for example, requiring regulatory approval in a number of jurisdictions including Australia, Brazil and China. Besides the scale, the most obvious difference surrounds the current respective positions in the business cycle of the energy industry as compared to the high pace apparent in technology (surrounding the electronic wallet & payment industry, in OPAY’s case).
For every twenty sensible small ‘bolt on’ purchase made by a typical company’s management, who seek to steadily evolve into a stronger more sustainable business, there’s typically only one transformational corporate deal. But when one of the latter does come along – such as AIM listed payment processor Optimal Payments’ (OPAY) Eu1.2 billion acquisition of the privately owned Skrill this week – it makes the pulse of both Sell side analysts and existing investors beat faster.
When board members buy or sell shares in their own company, canny investors take note. Such action, which can only be carried out in ‘open’ periods (ahead of a company year-end, and after the announcement of trading results) is perhaps the best indicator that one can expect when discerning how a listed company is performing. Such director purchases or sales, however small, have to be reported to the wider market in order that all existing and potential investors become aware. Call them ‘insiders’ if you wish. Although there can be good reasons for a senior executive director to sell shares (for instance a divorce settlement or property purchase), such transactions merit scrutiny to see if investors should have concerns and follow the insiders’ lead.
As promised in the previous blog, entitled ‘Choosing a collective investment’, this article seeks to illustrate some of the suggested strategies by highlighting a few collectives of the writer’s choice. The first is an actively managed closed ended fund (not subject to in or outflows of investors’ monies) enabling investment into large global blue chip companies. The second collective facilitates ownership of the FTSE100 – which represents almost 80% of the UK equity market – delivering this index’s returns in the most reliable fashion, and at the lowest possible cost. The third selection features another actively managed fund, but this one is open ended (and so impacted by the movement of investors’ subscriptions) but its bid and offer prices will more accurately reflect the worth of the underlying assets than an investment trust whose (share price) valuation could differ significantly from the net asset value of its portfolio of investments.
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