Sky and e2v bids show how weak pound is luring predators toward UK firms.
Follows bids for ARM and Poundland
Five additional targets could be ITV, AVEVA, Spectris, Renishaw and Imagination Technologies
Russ Mould, investment director at AJ Bell, comments:
“Friday’s bid for Sky from 21st Century Fox and today’s all-cash offer for FTSE Small Cap stock e2v Technologies are the two latest examples of UK-quoted firms attracting an overseas predator and the pound’s post-Brexit plunge means more deals are likely.
“Even allowing for a rally since November, the pound is down by 13% against the euro, 15% against the dollar and 19% against the Japanese yen compared to where it began 2016, a trend which makes UK-based assets and UK-quoted firms look all the cheaper to overseas buyers.
“ARM and Poundland have already attracted bids from Japanese and South African buyers, while Burberry has reportedly fended off an approach from US firm Coach. California-based Teradyne is the source of the £620 million all-cash offer for Chelmsford-headquartered e2v whose shares have rocketed by 47% to 273p, just below the 275p-a-share proposed purchase price.
“Even if Sky is trading at 995p, some way below the £10.75-a-share offer from Fox, to reflect doubts over whether that deal may happen, further approaches for British firms seem possible.
“Based on their competitive position, the rarity of the assets they control, their balance sheets, their shareholder structure, the nature of the industry in which they work and the valuations they currently command it is possible that the following five companies could all become a takeover target in the coming months.
“ITV has an unrivalled position in the UK free-to-air broadcast arena with its ability to attract mass market audience and blossoming content catalogue. The 9.9% stake held by Liberty Global, the US-based owner of Virgin Media, means talk of a bid will never be far away and fears over a post-Brexit advertising slowdown has knocked the shares which intriguingly bounced on Friday on news of the Fox approach for Sky.
“Industrial software expert AVEVA is another potential name in the frame, especially after two failed attempts to agree merger terms with France’s Schneider Electric and the decision by longstanding boss Richard Longdon to step down at the end of the year.
“FTSE 250 firms Spectris and Renishaw, both leaders in precision instruments with good long-term growth records. In the latter case chief executive and chairman David McMurtry and deputy chairman David Deer are 76 and 78 and they own nearly half of the stock, although it would be unwise to expect them to sell to anyone – the company’s history shows a strong culture and management has always worked hard to keep jobs rather than cut them during cyclical downturns, so staff welfare will be a high priority.
“One final target may be Imagination Technologies. Even though the silicon graphics chip expert has had a torrid few years, marked by profit warnings, the sale of its digital radio business and the eventual departure of long-term boss Hossein Yassaie, a new CEO and new strategy bring a clearer focus to the firm, which is also a bigger winner when it comes to sterling weakness. According to research from UBS, a 10% drop in the pound against the greenback boosts Imagination’s profits by 20%.
“One final word of warning, though – buying a stock purely on the basis of a bid can be a mug’s game. Remember that any would-be buyer would rather get a bargain, so they may wait for a short-term blip or problem to develop before lunging. In addition, bids can take a lot longer to come than you think – assuming they do at all.
“Any potential “bid candidate” play in a portfolio must therefore still meet all of the investor’s initial screens, so it is fits with their overall investment strategy, time horizon, target returns and appetite for risk. You must feel the firm is a good pick in its own right – and any bid will therefore simply be a bonus.”