Sitting tight
PORTFOLIO JOHN BULL
The battle for Cambridge Instrument is hotting up very nicely. I bought 300 shares for my speculative portfolio six weeks ago at 38s 9d.
That was immediately after Rank Organisation announced that it wished to take the company over. My belief then was that the Rank bid undervalued Cambridge's fast improving profits trend and that, in any case, others would be interested in this key unit in the scientific in- strument field. As I write, the shares are over the 43s mark and will, I think, go higher. The sequence of events is as follows.
Cambridge immediately turned down the Rank bid (then worth 34s a share, now worth 36s 8d owing to the rise in the Rank share price). Three weeks later the company's annual report was published. It was short on profit projections but long on optimism—that is, it was a document carefully calculated to en- courage while leaving.figures for a more crucial stage in the coming battle. Rank then pro- duced its formal offer documents, which were, in their way, formidable. Cambridge share- holders were told that Rank's income would rise by 30 per cent this year. They were also taken by the hand through some interesting income calculations. These showed that where- as a holder of 400 Cambridge shares now stands to receive a gross dividend of £22, the return would rise to £33 3s 6d on acceptance of the Rank offer. But meanwhile Cambridge Instrument had been quietly negotiating with George Kent.
On 16 May George Kent announced a bid worth 42s 6d a share for Cambridge—this time with the approval of the board. The terms are one Kent ordinary share plus 12s 6d in 8 per cent loan stock. On the day it was an- nounced, the Kent bid cleared Rank by 5s 9d. It provides Cambridge shareholders with a 91 per cent increase in income compared with a 50 per cent improvement from Rank. And with Cambridge forecasting a 25 per cent rise in pre-tax earnings to £680,000 in the current year, George Kent is effectively buying Cambridge out at twenty-nine times earnings—a high mul- tiple. In fact, this looks like a bid which George Kent can hardly afford. To begin with, the acquisition of Cambridge would add 50 per cent to Kent's equity and only 27.8 per cent to profits before tax net of financing costs. Of course, if Cambridge Instrument continues to forge ahead, then the acquisition will eventually pay for itself.
As it happens, however, George Kent may never have to face these worries. Rank indi- cated on Monday night that it would put in a second bid for Cambridge, though it has not yet decided what its value will be. In a clever use of Rule 11 of the new takeover rules, Rank, advised by Kleinworts, is demanding that it should be provided with the same infor-
mation that George Kent has, as the favoured bidder, already had. To quote the rule itself: 'any information given to a preferred suitor should on request be furnished equally to a less welcome but bona fide potential offerer.' So now we wait for Rank to make up its mind. I shall make no move at alr with my holding for the time being. The big institutions seldom accept a bid until the very last moment, and I shall follow their example.
Associated British Foods has gone ahead by a few pence since I bought the shares one week ago. Now the terms of the rights issue have been announced. They are one new share for every ten held at lOs 6d a share. I shall in due course take up my rights and advise readers to do the same.
I said when I bought Brayhead that the shares were an up-and-down market. So they have proved. Up to over 14s earlier this week, they are now back to 12s-13s compared with my lOs 3d buying price. As the shares have come up from slightly under 2s over the past six months, there are a number of holders taking their profits.
Valuations at 22 May 1968
First portfolio £5,963 (details next week)
Second portfolio 100 Guardian Assurance at 39s 3d xd £196 40 Royal Exchange Assurance at 98s 9d xd £197 300 Cambridge Instrument at 43s 3d .. £649 1,000 Brayhead at 12s 9d £612 Cash in hand £3,479 £5,133 Deduct: expenses £34 Total £5,099
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