In the wake of a £3.6billion overseas takeover bid for the postal services company, a New York hedge funds has taken a short position on the owner of Royal Mail.
Sessa Capital was listed as holding 0.73 percent of International Distribution Services in Friday’s regulatory filings, just two days after IDS board members recommended accepting a firm bid from EP Group, a conglomerate owned by Daniel Kretinsky – IDS’s billionaire Czech investor.
On Tuesday, the short position was increased to 0.83 percent. One City analyst called it a “bold” move and “intriguing”.
Sessa, the analyst, who spoke confidentially, stated: “Sessa clearly believes that the bid will fail. It’s obvious that this is their motive.
They said: “There are two mechanical failures — either it does not meet the shareholder approval threshold or it is blocked by the government.” You have to think that the government’s blocking is more likely for Sessa.
Short selling is borrowing shares from existing investors and then selling them on the open markets. The goal is to return the shares to the owners at a lower price if they fall in value, or to purchase them later at a reduced price if the share prices drop.
Sessa has been asked to comment on the short position it holds, and whether or not this is part of a larger trade.
Sessa led by John Petry is currently the only short position disclosed in IDS. Positions above 0.5 percent are required to be registered and made public under the Financial Conduct Authority’s transparency rules.
Sessa has only one UK short position currently publicly disclosed. According to FCA data, the hedge fund had previously shorted Plus500 in 2005.
Sessa, a relatively unknown investor in the City of London, forced Patrick Drahi – the telecoms tycoon – to increase the take-private bid for Altice Europe by late 2020.
EP Group’s bid for IDS was opposed by some large shareholders and is now being reviewed under the National Security and Investment Act. This Act gives the current government the power to block deals that involve critical national infrastructure.
The London Stock Exchange closed IDS shares down by 1/2p or 0.1 percent at 335p. This is below the recommended EP Group offer of 370p a share, which reflects what some City analysts see as “political risks” in the deal.
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