Shares in aircraft engine-maker Rolls-Royce (RR.) sank 11.3% to 97.7p on Monday morning.
In doing so they reversed a good chunk of Friday’s gains on bid speculation as investors became increasingly sceptical over claims on financial blog site Betaville of a looming ‘significant corporate transaction’ with an unidentified party.
Rolls-Royce shares have endured significant turbulence in the wake of the pandemic given the firm's exposure to a severely challenged aviation sector.
They have also been rocked of late by the news long-standing chief executive Warren East is set to leave.
GOLDEN SHARE CHALLENGE
Commenting on the reports last week of potential bid interest, Jefferies analyst Chloe Lemarie said: ‘We flag two periods in the past when talks of potential takeovers occurred: following the series of 2015 profit warnings, and after the group's right issue in late 2020.
‘The rationale then, i.e. that Rolls-Royce's challenges make it affordable and would imply good returns in case of a turnaround of the business, still holds true, which is why in our view the share price reacted so significantly.’
However, Lemarie noted the vague nature of the reports and also flagged the obstacle posed by the UK Government’s golden share in the group.
‘Any takeover would have to be much more than purely opportunistic,’ Lemarie added. ‘And we struggle to identify any company where there would be strong rationale for such a deal.
‘BAE Systems (BA.) may seem like an obvious candidate given that it would not face challenges regarding the golden share - but such a move would not fit the group's current focus on bolt-on acquisitions, especially around Electronic Solutions, Space & multi-domain - and cash returns.’
