The recent uptick in M&A activity alongside some topical IPOs presents a good opportunity to assess long and short interest in some of the higher profile announcements. Companies mentioned below are OCDO, Ag Bank of China, JUP, RB, SSL and TOMK.
If the adage, “any publicity is good publicity” rings true, Ocado (OCDO) is set for an avalanche of new customers to its grocery delivery service after it became one of the most controversial IPOs of recent times. By way of background, last week’s IPO of Ocado was the culmination of 10 years hard work by three former Goldman Sachs bankers who run a state of the art grocery delivery business currently most active in the London area. Some new customers would indeed be a silver lining with shares still trading at the bottom end of the float range.
In assessing short interest in OCDO, Data Explorers ascertained that by Thursday last week inventory for securities lending by those institutional funds who lend amounted to only 10m shares or 2.5% of the shares outstanding. This relatively small institutional ownership (see Jupiter below) makes it extremely difficult to borrow and shows that, at least early on, few of the big funds subscribed to the IPO. These shares sit with 7 different Custodian’s implying that the ownership is quite diverse. There are 17 lending trades at very high lending fees amounting to a short base of just under 1% of total shares out on loan.
By way of comparison Agricultural Bank of China (1288) floated in Hong Kong very recently. Institutions which make their portfolio available to borrow own 4.6% of the shares outstanding or 1.2m shares. Demand to borrow was instant, with 102 loan transactions taking place in the first days of trading which amounts to 2.3% of total shares.
Jupiter Fund Management (JUP) recently floated in London. Lending institutions already own at least 6% of its total shares and there is no short interest.
Reckitt Benckiser (RB) announced an accepted deal with SSL with a 30% price premium. Neither name had significant short interest. SSL is quite widely held by institutions with 22% (top quartile) of their shares held by funds who lend. This hasn’t moved much over the past 2 years. Some funds have already sold their shares thereby showing confidence that no improved bid will be forthcoming.
Tomkins (TOMK) is another UK mid cap subject to a recommended takeover. News has recently broken that some shareholders, led by Standard Life which owns 3%, think the company is selling itself too cheaply. Ahead of the bid, short selling was 5% of total shares and this has rapidly reduced to 3%. One wonders why TOMK is still trading below the offer price of 325p. 75% share holder approval is required to accept the Onex/Canadian Pension Plan bid and 26% of shares are owned by funds who lend. Some institutions have sold already indicating no expectation of a higher bid. We have seen 25m shares leave the lending pool over the past 2 weeks. This one will be worth watching.
One hopes this recent spate of deal activity is a harbinger of things to come.
