Global Logistic Properties Ltd Announced ‘Firm Proposals’ From Bidders. What Does It Mean To Investors?
Global Logistic Properties Ltd (SGX: MC0) or GLP is an owner and developer of modern logistics facilities. It has operations in four countries, namely, China, Brazil, Japan, and the US.
A news article by Nikkei Markets reported that the company has received firm proposals from shortlisted bidder. As such, the company said that a special committee it set up is now conducting an in-depth and independent review of all the terms of the proposals in consultation with its external advisers.
What does that mean to retail investors?
Though there is no certainty that the bids will result in a transaction, momentum is clearly building up for the company to be taken over. As such, in the absence of any material issues, the outcome will likely be driven by the offer price.
But what does this mean to private investors like us?
Well, if you are interested in the takeover, chances are you are one of two categories of investors.
Firstly, you are an investor in the company who will “hope” that the takeover price is higher than the current market price. Secondly, you are a trader who might want to benefit from this corporate exercise through short-term trading.
If you belong to one of the two groups above, it will be useful that you review the historical valuation of GLP or review the recent takeover of other companies to estimate the potential offer price for GLP.
For example, if GLP has historically trade between price-to-book of 1 to 1.5 times, there is a good chance that the offer price will take that into account.
After you have estimated the range of potential offer prices, you might want to plan your next course of action, based on your risk and reward ratio. After all, there is no guarantee that this takeover will materialise. If the takeover fails, there is risk that GLP’s share price might drop.
If the risk reward ratio is not attractive, then it might be worthwhile for existing investors to exit now, since the share price is up by about 57% in the last 12 months. Similarly, traders planning to take advantage of this corporate exercise should only go forward, if the risk reward ratio is attractive.
Some of us might ask – so what is an attractive risk reward ratio?
Unfortunately, I have no answer for that, since what’s attractive to one investor may be unattractive to another.
Still, the basic principle here is to make sure that the upside risk must be greater than the downside risk.