Tribal

(TRN:AIM) 51.2p

Loss to date: 20%

Trading a seeming arbitrage opportunity is always risky and this has blown up in our faces. Education software supplier Tribal (TRB:AIM) had a takeover offer from US peer Ellucian on the table worth £172 million on an enterprise value basis, or 74p per share. The deal had been recommended by the board and had a lot of early shareholder backing.

That the competition watchdog was sniffing around looked, to us, a limited threat, as we explained in the original article. With the stock at 64p, it looked like there was 15%-odd of upside there for the taking.

WHAT HAS HAPPENED SINCE WE SAID TO BUY?

Then the bombshell landed. Another US-based education software player Jenzabar was in the frame. It had been quietly building a stake in Tribal, and its activity in Tribal shares accelerated meaningfully following Ellucian’s offer.

Jenzabar did not want the deal to go through, and while its rationale has not been offered, it presumably didn’t fancy the idea of Tribal bolstering a competitor. It would also not be making its own offer for Tribal. 

On 21 November 2023, Jenzabar pushed its Tribal stake to 26.5%, large enough to scupper the deal, which would require a minimum of 75% shareholder approval. Tribal shares sank.

WHAT SHOULD INVESTORS DO NOW?

Shares did warn about the potential for the deal to fall apart, either because the CMA unearthed something that queered the pitch, or Ellucian simply walking away, and in either case, ‘the share price would likely return to the pre-buyout 50p to 55p levels’, as we wrote.

Still, this leaves investors in a tricky position - stick or twist. 

What we have learned is the price most shareholders are willing to accept for any future deal, and one could yet emerge that Jenzabar does not oppose. Tribal is not stretched financially and analysts project a continued earnings recovery after 2022’s losses. A 2024 PE of 16 is roughly in line with its sector.

But investors may believe a clean cut is best and that rationale is hard to argue with.

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