Usually, you say thank you very much. Bids for companies are almost invariably well above the price of the shares just before the bid, so shareholders benefit. On the other hand, what may well have tempted a predator is precisely that the price was standing way below any rational basis of valuation, for instance the net asset value, so it would be worth buying a business just to sell off its assets at a profit. In that case it is worth resisting, if only to get a better price.
Sometimes the offer is resisted fiercely by the target company, and the scheme for some inverted reason is then called a ‘hostile takeover’. The defence usually says the bid is unwelcome and opportunistic as it undervalues the company’s prospects, and the company could perform far better on its own, given the chance. The private shareholder cannot tell whether this opposition is motivated by a desire for independence, a fear of directors’ losing their jobs, an attempt to get the bidder to increase the price, or a genuine feeling that shareholders would do better with the existing regime. It is, however, worth remembering that the directors’ legal duty is to act in the best interests of shareholders.
The decision is made even more complicated if the offer is wholly or in part in the form of the bidder’s shares. The choice is then cluttered with other considerations such as whether one wants those shares, whether the valuation of the buyer’s equity is fair or realistic, and whether selling might crystallize an unwelcome capital gains tax liability.
The takeover process is monitored by the City Takeover Panel, which has no power, legal or otherwise, but manages to have its way because all the City people support it. So anybody who tries to flout its rulings would be ostracized, and once frozen out of the financial community doing business would be impossible. Being non-statutory also gives the panel the signal advantage of being able to act quickly. Moreover, it can tell participants it does not like the way they are acting – it has been known to reprimand people not for failing to follow the letter of the City Code but for neglecting its spirit. In addition it can take instant action to change the Code when a loophole has been discovered.
The panel is charging savers to supervise companies. A levy of £1 is being collected for it by stockbrokers on dealings worth more than £10,000.
It can be almost as good to own shares in a company that is in the same sector as a highly publicized acquisition. As soon as one estate agent, retailer, computer assembler, brewer or whatever has been bought, the market usually assumes a ripple of parallel acquisition activity will overtake its competitors. Their shares jump as a result. Since the flurry of copycat activity rarely materializes, especially once the targets have become expensive, it may then be a good time to sell.