This past week Fidessa Plc – a company I have been buying shares in via my monthly stock purchase programme – received a takeover bid from Temenos for a total value of £36.467p a share. The shares in the company consequently shot upas a result of he takeover bid and are now trading at £38; a price above Temenos bid price. The reason for the shares shooting higher than the bid price is due to heavyweight investor Elliot disclosing an increased stake in Fidessa implying that the current takeover price undervalues Fidessa. Elliot normally gets what they want – just look at how Qualcomm increased their bid for NXP semiconductors recently following pressure from Elliot – and this has led the market to think that Elliot will pressure Temenos to increase their bid in order to complete the deal. I agree with this line of thinking from Elliot as I do believe that the bid undervalues the company. Fidessa has in the recent past invested heavily in its business, as I wrote when I first initiated my position, and the results of this heavy investment period is starting to show up now as seen by the company’s most recent results.
As a result of the takeover, I am now up a total of 80%+ on Fidessa shares. Not bad considering I only initiated my stake just six month ago. Although this investment has given me an excellent return, I am not the most thrilled about takeover approaches in company’s I am invested in. I now have to look for a new home for my cash and there are not many companies that are of the same quality of Fidessa.
Fidessas biggest strength was its ability to be a quiet cash generator. Its capital-light business model allows it to consistently fund both its growth investments and dividends from internally generated cash. And even in the midst of the reinvestment period Fidessa undertook within its business as mentioned earlier, the company still produced torrents of cash flows which it showered on investors through ordinary dividends, special dividend and share buybacks. Fidessa will certainly be missed from my portfolio. And it is joining a list of other high quality companies that are being taken over.
Dr Pepper Snapple (DPS) was another stock that featured in my portfolio, as holders of my ‘stocks list’ will attest. Like any other high quality company, DPS had strong returns on invested capital, copious amounts of Free Cash Flow, had a robust balance sheet, had a steady underlying economic engine, all of which led to it being a wonderful investment for its shareholders. The takeover premium for DPS is close to 25% – the exact number is not yet known due to shareholders getting a 13% stake in privately owned JAB holding. So whilst this 25% premium gives my SIPP portfolio an immediate boost, I am of the view that if Dr Pepper Snapple was never bought out, it would have provided me with a much better return over my investing life than the $103.75 I will receive in cash and a share in the new JAB holdings.
Many investors don’t share my view. They would rather have companies in their portfolio get taken over and use the cash premium received to simply go and find the next stock to buy into in the hope of another takeover. I an on the other hand am an investor that treats stocks as an underlying ownership of a business. I know certain businesses are far better then others. I know that certain businesses will provide me with a far greater level of wealth over my investing lifetime than other businesses. I know that they are only a handful of businesses worth investing in over the long term. And these businesses are increasingly rare. And with each takeover, the number of high quality companies one is able to invest in shrinks. High quality businesses that are serial compounders of wealth are a rare breed. That is why I have been extremely sad to see Fidessa and Dr Pepper Snapple go from my portfolio.