Staples continues the acquisition process of CE

Yesterday, Staples announced that they commenced the cash tender for certain CE notes. There is nothing special about this announcement, besides the fact that Staples seems to continue the process as if nothing has changed. But then again, why shouldn't they continue like this, since we appear to have landed in some sort of high stakes poker game. By continuing the process this way, Staples can test the reaction of the market. There is no real need to change anything about the offer or the offer price of EUR 8.00 per share in the next three weeks, so why not try to influence the speculators to see what happens.

We should not forget that since the first announcement of the offer, many shares have changed hands, and I assume most ended up in the hands of speculators who have no interest in the long term prospects of CE, but are only interested in making a quick buck, or Euro in this case. We can be totally unscientific and try to estimate how many shares have landed in the hands of speculators since February 19th

If I assume that a on a normal day, an average volume of shares is traded of about 3-5 million, we can identify the high volume days, of let's say more than 10 million shares traded. These days were in the beginning of February when speculation about an offer started (24 mln), February 19th and 20th when the offer was announced (54 mln), March 17th when the market was worried Staples would not continue (12 mln), May 13th when Staples announced the offer would be increased to EUR 8.00 per share (14 mln), and finally May 21th when the merger announcement between CE and Lyreco came out (25 million). This is a total of 129 million shares traded in just 6 trading days. It is anyones guess how many of these trades were just short term round trips by day trading speculators, but assuming that a reasonable percentage of 30% of these shares traded, ended up in the hands of patient speculators, this would be about 39 million shares, or more than 20% of the ordinary share capital of CE. Given that in most other trading days, speculators would also have been buying, I am comfortable with this estimate and the true number could maybe be as high as twice this percentage in my opinion.

A percentage between 20% and 40% will matter, because it means that in addressing the shareholders, both Mr. Ventress and Mr. Sargent have to appeal to investors and speculators, and these two groups of shareholders have a completely different agenda. So in the next weeks, both these gentlemen have to play it cool, where certainly Staples will need to find out if it makes sense to raise the offer, and if this does make sense, how much is required to win the game.