Financial issues

This next case study illustrates another method of spotting takeover targets, which is the mirror image of the approach used with Rexel. In addition to monitoring stocks that are being bought by outside beneficial owners, you should also take a close look at stocks where an outside beneficial owner has indicated a desire to sell.
The reason for this is that, more often than not, the outside beneficial owner owns so much stock that an open-market sale is not only impractical but also makes no business sense. Since the objective of the beneficial owner should be to maximize the value of the investment, the proper way to get out of a large position in one company is to either sell the stake to another company that may want to buy the target company or perhaps urge the target company to put itself up for sale as a way of maximizing value for all stockholders. In the vast majority of cases where a block of stock owned by an outside beneficial owner is sold to a third party, the third party will be thinking in terms of an eventual takeover.
Therefore, what seems to be a negative to “old paradigm” thinkers—that a large outside beneficial owner shareholder wants to sell its stake—is usually a sign that the target company is about to enter the ranks of the superstocks.

Finally, in September 1997, Rexel S.A. announced a takeover bid for Rexel. The offer was initially at $19.50 per share, then ultimately raised to $22.50 per share. That takeover price represented a premium of 119 percent over our original recommended price of $101⁄4 in just two years.
The moral of the story is that even when you clearly spot the Telltale Signs that an event is about to occur that will drive up the price of an undervalued stock, you also may have to be very patient.