De La Rue rockets on takeover rumours

By Graeme Dickson
Updated: 11:59 EDT, 8 December 2010

The FTSE 100 index rallied 166 points or 2.9 per cent over the last week to close yesterday at 5808, as the European Central Bank pledged to retain exceptional liquidity measures until at least April 2011.

Interest rates in Europe remained unchanged at one per cent, a record low.

On the negative side, US weekly unemployment benefit claimants rose by 26,000 to 436,000 up to 27 November, higher than forecast.

Additionally the all-important Non-Farm Payroll figures for November were much worse than anticipated, with just 39,000 jobs added against an expectation of 150,000.

The markets nonetheless seemed to brush the bad news to one side with some market commentators suggesting it was just a blip in the Non-Farm Payroll data, before a pick-up in employment activity in the early part of next year.

In the meantime, look out for resistance on the FTSE 100 at 5900 and support at 5550. A close above 5900 could lead to a re-test of 6000-6100.

Big mover of the week: how you can profit

The best performing FTSE 350 stock since last Wednesday came from De La Rue (DLAR), the bank note printer, up 32.97 per cent to 847p after it received a takeover approach equivalent to 905p from French company Oberthur.

De La Rue, which is currently without a chief executive after the previous CEO James Hussey left in August, recently announced that it was in advanced discussions of appointing Tim Cobbold, the former chief executive of the highly successful Chloride Group, before Emerson Network Power of the US took over the company.

It seemed that the possible appointment news prompted the French company to make an opportunistic approach before control is handed to a highly competent individual, experienced in maximising shareholder value when bid situations arise.

Cash printer: Up 32.97% to 847p after it received a takeover approach

Oberthur, a privately held maker of banknotes and smart-card technologies, stated that the board of De La Rue had said it was "unwilling to enter into substantive discussions" with Oberthur, saying the offer fails to recognize the fundamental value and future prospects of its business.

De La Rue has found it difficult to quickly resolve the problems associated with its paper production irregularities that impacted the company earlier this year.

An investigation was carried out, which revealed that some employees had deliberately falsified certain paper specification test certificates for a limited number of customers.

Additionally, the company scrapped a planned share buyback after booking £35 million in extra costs, stemming from its production problems and warned that the financial impact this year and in subsequent years was unclear.

Getting approval of a takeover might be difficult from a security viewpoint, given that it prints both sterling banknotes and UK passports and perhaps that is why the shares languish at a near 60p discount to the prospective bid price.

Given the uncertainty, if you are not holding the stock already, I would be inclined to avoid chasing this situation, especially when you consider the issues De La Rue have at this moment in time.

If the bid talk rescind with the inevitable share price fall, but the company succeeds in taking on Tim Cobbold, that might be the trigger to jump on board.

Keep an eye on…

SuperGroup (SGP) on 15 December as the company is scheduled to release its interim results.

The company recently stated that its SuperDry clothing range sales along with other brands SuperGroup owns, grew 28 per cent in its second quarter to £57.5 million.

There is little doubt that SuperGroup has succeeded in capturing the nation's youth market attention.

While this lasts, the current buying activity in the stock is likely continue to drive the share price up, especially when you take into account the limited 30 per cent of stock available to the public.

For now I would refrain from going short.

Highlights from FTSE 350 stocks last week include:

• On Thursday, debt-ridden Premier Foods (PFD) rallied 12.21 per cent to 18.56p after it admitted it was close to securing a sale of its Quorn vegetarian business for £230 million, rumoured to be Nestle.

• Car-parts business GKN (GKN) jumped 7.68 per cent without any explanation or rumour.

• On the same day mining giant Rio Tinto (RIO) gained 4.7 per cent to 4415p on rumours it was to acquire Alcoa of the US.

• On Friday, online grocery delivery service Ocado (OCDO) gained 10.8 per cent to 170p as rumours of a WM Morrison (MRW) continued to persist.

• Ashtead (AHT), the construction equipment rental business held steady at 144p, despite chatter it may be subject to a bid. There was talk that Ashtead might in fact be the unnamed party looking to acquire power rental company Lavendon Group (LVD) for 111p a share.

• On Monday De La Rue shot-up 29.88 per cent to 841p after it confirmed it had received a bid approach, as highlighted above.

• Yesterday housebuilder Bellway (BWY) jumped 9.77 per cent to 612.5p after it predicted 20 per cent growth in pre-tax profits for the six months leading to 31 January 2011.

• On the same day Sainsbury (SBRY) gained 4.28 per cent at 373p on rumours the Qatari Investment Authority were looking to bid 450p a share, for the balance 74 per cent it does not own.