William Hill (LSE: WMH) revealed last week that the company had been the recipient of two separate cash proposals from both Apollo Management International and Caesars Entertainment. This stoked the price up over 40 per cent on the day from 220p to 312p. Other gambling stocks also began to move such as 888 (LSE: 888) and Flutter Entertainment (LSE: FLTR). Whenever there is a takeover in a specific sector, the market anticipates there is more value to be unlocked within other industries. This is the cheerleader effect in action, which is also known as the group attractiveness effect; the cheerleader effect is the cognitive bias that sees us believe individuals are more attractive when they are in a group rather than alone.
Very often the recipient of the bid – if announced intraday – will gap up into auction as the trading price threshold is crossed and the auction is automatically triggered. This is of course assuming the recipient is traded on SETS. If the stock that has announced a potential bid offering is traded via the market makers or on SETSqx, then it is sometimes possible to catch the market makers asleep at the wheel if you’re quick.