Evolution and Misys: what these takeover tales tell investors

The divergent fortunes this week of two UK stocks, Evolution Group (EVG.L) and Misys (MSY.L), point to the potential for huge gains – and savage losses – that takeover talk can bring investors.

Shares in Misys plunged 63p, or 18%, to 295p on Thursday, after US payment processor Fidelity National Information Services (FIS) said it was no longer considering making an offer for the financial software maker.

The loss represents a 54% decline from the 10-year high of 430p to which Misys soared in late June, after FIS confirmed it had made a preliminary approach regarding a possible cash offer for the FTSE 250 company.

Meanwhile, stockbroker Evolution on Wednesday jumped 9.5p, or 13%, to a day high of 82.75p after confirming an approach from an unnamed suitor.

After closing at 79.75p, the shares rose a further 0.25p on Thursday to 80p, after Evolution revealed that the approach had come from South African banking group Investec.

The falls in Misys could serve as a precautionary tale for investors piling into known bid targets such as Evolution, and making more speculative bets on stocks they believe are likely to be the subject of predatory interest.

‘For the cautious investor, we do occasionally suggest as soon as the bid comes out selling into it... because you shouldn’t believe that it’s guaranteed to go through,’ said Graham Spooner, investment adviser at The Share Centre, branding this a ‘bird in the hand’ opportunity.

Merger & acquisition activity has been weak this year – as have equity markets, a state that makes some ‘opportunistic’ bids more likely to be rebuffed, according to Spooner, as they are seen as undervaluing the takeover targets.

He cited as an example manufacturer Charter International (CHTR.L), which has rebuffed two offers from buyout firm Melrose (NYN.L). Then, of course, there is British Sky Broadcasting (BSY.L), for which Rupert Murdoch’s News Corp withdrew a takeover bid as a phone hacking scandal engulfed his media empire.

Nonetheless, Spooner said there were certainly sectors such as utilities that were more prone to M&A activity, pointing to the recent acquisition of Northumbrian Water (NWG.L) by Hong Kong group Cheung Kong Infrastructure in the biggest takeover of a UK-listed firm since Kraft snapped up Cadbury in 2010.

For Misys, and its investors, the takeover story appears to be over – for now at least.

Panmure Gordon on Thursday cut its target price for the stock from 403p to 343p, what the broker described as a level ‘undisturbed’ by takeover talk. Evolution also reduced its target price for Misys to 280p from 358p, downgrading the stock to ‘sell’ from ‘neutral’.

‘There are no other bidders for Misys at this stage, and we expect this process would have flushed out any other interest,’ said Rajeev Bahl, analyst at Matrix. ‘As such, we expect Misys to return to trading excluding any bid premium.’