LAST Friday at 3.28pm, a company called IPC Advisors, owned by the family of Paul Reichmann, issued a statement announcing its intention to form a consortium to join the bidding contest for troubledproperty group Canary Wharf.
The statement caught the stock market in an end-of-week slumber and for two minutes the Canary Wharf share price failed to react. Then it shot up from 268p to 2791/2p before settling at 274p.
A handful of quick-witted speculators managed to jump in.
“I had just got back home from a game of squash when the phone went,” one trader recalls. “A friend pointed me to the IPC statement and I had a two-minute opportunity to fire up my computer, buy into Canary Wharf then sell out at a profit.”
This episode is just one example of how the array of contested bid situations going on in the City this autumn is proving a magnet for short- term investors such as hedge funds and individual risk arbitrage traders.
The most extreme case is Debenhams, where two bidding consortia – Baroness Retail and Laragrove – are vying to buy the department stores group for more than 1.5 billion.
As the share price has risen from about 410p in July to 470p, traditional investors such as Standard Life and MG have been gradually selling shares to lighten their holdings.
Lower-profile holders have taken up the slack.
Dominic Connolly, an independent derivatives expert, says: “I would estimate that 30% of Debenhams shares are now in the hands of hedge funds and individual traders.”
Intimate observers of the bid battle do not dispute Connolly’s figure.
Several investment banks have sprung up on the Debenhams share register with sizeable holdings, built up to back client positions in derivatives such as contracts for difference (CFDs) and total return swaps.
Speculators can use CFDs to build up large positions on the basis of an initial cash outlay of less than 10% of the value of their exposure.
Total return swaps involve client funds buying stock, then selling it to a broker, but leaving any profit or loss on the shares to accrue back to them.
The arbs are playing Debenhams as follows.
Barring unforeseen shocks, they believe there is a floor of 455p under the shares, as a result of the cash bid already on the table from Baroness Retail. They see the chance of it rising to 480p or even 500 p if Baroness and Larag rove get involved in an open auction for the company.
London Clubs International, the casinos operator subject to bid rumours, has broking house Cantor Fitzgerald as a 2.9% shareholder.
Cantor says it has the stake in order to hedge a large spread bet made by one of its clients.
The tussle for music publisher Boosey Hawkes is a miniature version of the Debenhams battle.
Boosey, capitalised at just 50 million, is too small to interest hedge funds, although Sir Ron Brierley’s Guinness Peat group is sitting on a juicy arbitragestyle profit on the 16% stake it has built up.
There are two cash bids on the table – from private equity groups Regent Street Music, at 195p, and Classic Copyright, at 215p.
Rival firm Music Sales has not ruled out making its own offer.
Individual traders are also nibbling at Boosey.
They see a floor to the share price at 215p but are wary of the stock’s wide bid-offer spread, yesterday quoted at 210p-220p.
