When the news of a takeover hits the headlined, most investors will jump with joy and glee the fact that they will receive a decent lump of cash to part with their shareholding in that company. In fact, ask the majority of investors and they will tell you they love takeovers at a premium. Yet those who have read my site over the years will tell you that I hate a takeover.
This is what I wrote last year when one of the best companies on the FTSE and a portfolio holding of mine got taken over:
“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 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.”
I still feel today as I felt then.
So the news that one of my portfolio companies, Sophos Group Plc, received a takeover offer was not a very welcome one.
I initially started buying into Sophos as I believed that it is one of the very few FTSE listed technology companies that could compete on a global scale. The UK headquarters and FTSE listing are important as it means no withholding tax on dividends. Sure I can buy into American technology companies but dividend withholding taxes of 15% can be a little steep. But this is besides the point. To me Sophos offered tremendous value at my entry point as it was statistically cheap when compared to other ‘similar’ tech stocks and it had the massive tailwind and mega trend of cyber security working in its favour. All was looking like Sophos would be a company I would hold for many years with the underlying business compounding at double digits every year to leave me with a very attractive long term investment.
Fast forward to today – well yesterday – when news broke that US private equity firm has launched a takeover bid for Sophos valuing the company at $3.9 billion or £5.83 a share at current exchange rates.
This may seem like a very generous premium. It is 37% above the trading price of the stock on the last trading day before the takeover was announced.
In fact, looking at my own shareholding, I am up close to 70% on this investment in just over a year. Not a bad return at all.
But yet I still feel like a lot of money is being left on the table with Sophos at this price. I am sure that in the years to come Sophos will be far more valuable than it is today. So this is a bitter sweet victory. Ahhh you can’t win them all. In the meantime, I will have to double up on my research to find UK listed tech stocks that are worthy of entering my portfolio.