Takeovers

Your broker should let you know by e-mail of takeover action affecting a company in which you hold shares. If a takeover is to go ahead, the predator must obtain more than 50 per cent of the target company’s voting shares. Once its stake has reached 30 per cent, it must make a formal offer to all shareholders. If some shareholders decline to take up an offer, a buyer can acquire their shares compulsorily if holders of 90 per cent of the voting shares have accepted. The acquirer pays for a target company’s shares either with cash, its own shares, or a combination of the two.

It is the run-up to the takeover that is the fun bit, and it can also be very lucrative. Companies that are takeover targets, or rumoured to be, may see their share price soar over a short space of time. You can sometimes make a killing if you buy early, and sell out after the share price has risen nicely but before the speculation has subsided. This is a risky trading practice in which timing is crucial and luck plays a part. Don’t get greedy and hang on too long. If a takeover rumour is quashed, the share price can drop like a stone.