The Royal Mail (LON: IDS) share price has remained in a tight range in the past few days as investors assess the ongoing buyout activities. After crashing to a low of 213p in April, the stock has rebounded to 275.2p. It is now hovering near its highest point since February 7th.
IDS buyout probabilityDemand for British companies is rising gradually recently as evidenced by the strong surge of the FTSE 100 index, which has soared to its highest level on record.
International Paper is acquiring DS Smith, a leading British packaging company in a $7.2 billion deal. Similarly, Darktrace, a well-known cybersecurity company, is being acquired by Thoma Bravo in a $5 billion deal.
IDS, the parent company of Royal Mail and GLS, has also become a takeover target. Billionaire Daniel Kretinsky, one of the biggest shareholders in the company, has offered to buy the company for £3.1 billion deal, a big premium to the company’s valuation of £2.6 billion.
That performance is likely because investors are pessimistic that Kretinsky will reach the deal because of the company’s strategic importance to the UK. Also, there are concerns that his offer will not lead to a bidding war because Royal Mail is a highly leveraged company with over $3.9 billion in total debt.
IDS is also a business in decline, with the volume of its letter business being in a downward trajectory. While GLS is still growing, it is facing major headwinds as competition and operation costs rise.
Further, workers have sounded an alarm about the company’s buyout citing potential job losses and separation of its core business. They argue that he could separate GLS and Royal Mai’s parcel business and merge it with PostNL, a Dutch company that he has a big stake in.
Kretinsky, a Czech billionaire, has pledged to maintain jobs and the company’s credit rating. These assurances are important considering the importance of Royal Mail to the UK economy.
This is notable since this is a political year in which the country will have a new prime minister. According to the Telegraph, IDS is now considering the new assurances by Kretinsky.
The credit rating guarantee is important because investors have been accused of loading companies in debt and stripping their assets.
Royal Mail share price forecast
Turning to the daily chart, we see that the IDS stock price bottomed at 213p, where it formed a double-bottom pattern. It has now rebounded and moved above the key resistance point at 240p, the neckline of this pattern and its highest swing on April 5th.
The stock has also jumped above the lower side of the ascending channel shown in black. It has also formed a bullish flag pattern while the 50-day and 200-day moving averages have formed a golden cross.
Therefore, the outlook for the stock is moderately bullish, with the next point to watch being the psychological point at 300p, the upper side of the channel.
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