MSB trading, page-726

I look at how they operate. I was commenting more on the fear some people seem to have that there will be a flood of acceptances into a low ball bid which is way below the prices some people have paid in earlier years when the stock was much higher. IT WON'T HAPPEN.

Instos have been steadily soaking up the loose stock from the Teva selldown (much of which went to short term traders - hedge funds etc) and also soaking up the loose stock from people who were overcommitted post the last capital raising.

Sure, anything's a risk, but when you understand how these big guys invest, it doesn't make sense for them to sell at this point. They will have a portfolio of these stocks and don't need every one of them to be performing at once - and they need to hang onto the ones that are performing to make up for the ones that may be falling at any given time.

They expect ups and downs and work with the uncertainty rather than trying to fight it or beat it. Their timeframes are different to retail investors and they don't get easily spooked by a falling share price, but see it as an opportunity to get some volume - they tend to wait for it to bottom out or at least wait for the selling to abate (nobody like getting sold thru) and then build on the position near the lows - depending on how much they want to eventually buy and the limits on their portfolios. That's how they use market uncertainty to their benefit.

Admittedly, sometimes long-term holders sell to avoid becoming a locked-in minority, or when a portfolio manager moves elsewhere (but then she often buys it again at the new place) and sometimes there is forced selling from loss of mandates etc - but generally you can see the big holders have been rock solid and often adding to positions especially through these periods of price weakness.

I'm not talking about the hedge funds here, who have much smaller trading positions - they have to make shorter term profits and turn their capital over - but generally they buy at lower prices and sell at higher prices (or they go out of business) and they provide some liquidity as prices rise.

Have a look at some of the valuations the big US houses have put on MSB - the big investment funds would have similar valuations - but remember the brokers never like to be too far away from the share price as they fear it makes them look incompetent if something goes wrong, so they discount the further out indications by up to 80%. The investment funds don't have to do this, so their internal valuations are much higher.

I have seen many bids rejected by large shareholders over the years because the bid doesn't reflect their valuation - they may not have been correct to reject the bid, but they still rejected it and the bid failed. MSB's price is so far below many of the current valuations that I would be surprised if these big long term holders would accept a bid at any normal takeover premium (in the range of 40-60%) - investment boards would normally back their analyst and fund manager - they have an investment process and they risk losing their investment rating and their clients if they don't follow the process and can't justify their decision, and to accept a bid way below your valuation makes your analysis look weak and puts your job at risk - so they won't accept a low bid unless there are some other extraneous circumstances.

If these big instos won't sell to a low ball bid, neither will SI - for the same reason - he thinks it's worth a lot more!