FedEx shares surged dramatically yesterday amid financial market rumours that a leading US hedgefund investor might spend $1 billion on building up a stake in the company.
Bill Ackman, head of Pershing Square Capital Management, told investors in a letter that heintended to invest as much as $1 billion in an unnamed ‘large capitalisation, investment grade UScompany’ and sought contributions from potential investors, Reuters reported. A $1 billioninvestment would buy about a 3.2% stake in FedEx based on the company’s market valuation of $31.3billion.
According to Bloomberg news agency, Ackman said that the business in question “is simple,predictable, and free-cash-flow-generative, and enjoys high barriers to entry, high customerswitching costs and substantial pricing power”.
Ackman is well-known in North America for having bought into household names such as McDonalds,JC Penny, Procter & Gamble and Canadian Pacific and then seeking strategy changes as an ‘activist’ shareholder.
Speculation grew that FedEx could be the target and traders quickly bought up shares in thecompany ahead of any large-scale stake acquisition. More than 15 million shares were tradedyesterday, more than seven times the recent daily average, and the stock price soared more than 7%to a high of $106.35 before closing at $103.15, up 4.4% on the previous day’s close of $98.83.
But analysts told US media that the share price rise was based on “rumours and speculation” andquestioned whether FedEx really matched the description of the intended target company. FedEx andAckman declined to comment.
Separately, Fox Business reported yesterday that FedEx has agreed a tentative settlement overalleged customer over-charging in cases dating back to 2011. It was claimed that the company hadcharged businesses and government organisations higher residential shipping rates.
