It's a knockout for Ludowici

In fishing, there's always the 'one that got away'. It's a feeling investors get used to as well and the one that got away most recently was takeover arbitrage opportunity Ludowici Limited. So what's the story?

On 23 January, we noticed a takeover bid for Ludowici, one of those old-fashioned family companies where the stock rarely trades. The bid, by Danish company FLSmidth, was at a hefty premium—$7.20 per share compared to the price of $3.50 before the bid.

Intelligent Investor actively looks at these types of  situation to see whether there are any arbitrage opportunities. Indeed we have a special section of our site devoted to shorter term opportunities like this called The Ideas Lab. Past Ideas Lab successes include takeover arbitrage situations such as Centrebet and Dexion and share purchase plan opportunities such as Graincorp.

We looked into the Ludowici takeover but decided that, with the stock trading around $6.80, the $0.40 of upside (to $7.20) was probably not adequate compensation for the risks involved. For more detail on why, here's colleague Gareth Brown's answer to a member query about the Ludowici bid on the Ask the Experts forum [access for members only].

Counterbid

Since then, though, it has become rather more interesting, not to mention profitable for existing shareholders. Last week British company Weir Group made a counterbid at $7.92, a full 10% above the FLSmidth offer—and 126% above the trading price before the bidding war got underway.

The stock closed today at $8.03, so the market seems to be expecting FLSmidth (or someone else entirely) to beat Weir's offer.

Weir's playing dirty, which isn't uncommon in takeovers. Today it applied to the Takeovers Panel to restrain FLSmidth from raising its bid. Weir contends that FLSmidth had already indicated its bid was final, so to raise it would contravene the 'truth in takeovers' provisions of the law.

It's all still yet to play out, but it's likely Ludowici will be acquired for what looks like a very decent price.

Having missed the original opportunity, we're not about to recommend members get involved now. But it does show that, just occasionally, what looks like a knockout bid can itself be knocked out.