Since iSoft announced on 17 October that it was in talks that might lead to a takeover, dealings in more than 1% of the company’s share capital have had to be declared under rule 8.3 of the City Code for Takeovers and Mergers. These make interesting reading insofar as the information allows some limited conclusions.

Take Laxey Partners, for example, self-described as
“a global active value investment management company that pursues one strategy: it actively seeks to close the valuation gap between the share price at which an asset trades and its intrinsic value.”
The regulatory announcements show Laxey holding 0.8% of iSoft, or 1.9m shares. They also show Laxey must have held almost 10 million shares at 17 October. In between they have sold the difference at prices between 32.3p and 47p. iSoft trades at 56p as this is written. In cash terms Laxey are around £1.5m lighter. Panic selling (perfectly understandable)? Or actively closing the valuation gap?

On the other hand, there is New Star Asset Management. They currently control a short interest of 7.1 million shares or over 3% of iSoft equity. They held about 9.3 million shares short on 17 October more than likely sold at much higher prices. However, on visible dealings they have lost almost £730,000 since; and for every penny rise (or fall) in iSoft their holdings move £71,000. Complacently sitting on an overall profit? Or quietly confident there is more downside to come?

On balance, what is visible shows institutions holding significant longs. Capital Group, a US mutual is especially notable for it has bought its 1.96% pretty near the trough (if that is what it was); Barclays is essentially a net 4.1 million shareholder trading a portion of its holdings on iSoft volatility; HBOS is an iSoft banker and holds over 10 million shares; HBK Master Fund, a hedge fund has 12.7 million shares; and Sisu Capital another 8.3 million (no further detail available, unfortunately, on these two).

Significant shorts like New Star and, to a lesser degree, TT International (2.1 million shares) as well as the chancers lurking just below the 1% threshold may want to reconsider their positions. iSoft cannot survive without a deal; but with a market dominant install base throwing off cash like an annuity, products of some promise, operational improvements and a sector growing at 11% CAGR a deal is likely. Sentiment is improving and closing over 4% of iSoft capital in an in-demand market will boost the equity significantly. All the institutional long holders know it.

NB: The writer holds a financial interest in iSoft plc

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