Brexit fears have led to a weakening pound and offered great value to international companies looking to buy out premium British businesses, including Just Eat [JE]. Multiple deals have been struck as a result – sending the British stocks soaring on each occasion.
By the end of August, the total value of UK companies to have fallen into the hands of international companies in two months added up to more than £25bn, according to The Guardian.
Here’s a look at the biggest deals made this summer and how the stocks reacted following the news.
Just Eat momentum continues
News that Takeaway.com [TKWY] had agreed terms for a merger with Just Eat to create a combined company worth £9bn, sent Just Eat’s share price up by near 24% from 26 July to 30 August.
There is still potential for a counterbid, which many believe could come from Berlin-based Delivery Hero or South African media company Naspers. The potential for a counter-offer has kept Just Eat’s share price rising since the announcement was first made.
Deutsche Bank [DB] analysts recently noted that a merger between Takeaway.com and Just Eat is at risk of not completing, as the implied value for Just Eat’s shares is currently “below market value”, rendering it fairly ‘unappetising’ for Just Eat-only shareholders.
Short-term “high execution risk”, due to Just Eat’s weak delivery infrastructure in some of Takeaway.com’s more competitive regions, is another significant obstacle to completion, according to Deutsche.
However, the bank did see enough upside in the share price to raise their target to 750p from 690p, on 13 August.
|PE ratio (TTM)||131.52|
|Quarterly Revenue Growth (YoY)||29.60%|
Just Eat share price vitals, Yahoo Finance, 3 September 2019
Greene King soars on purchase by ‘Hong Kong’s richest man’
In one of the biggest deals of the year, 91-year-old Li Ka-shing has offered £2.7bn to buy the entirety of pub and brewery group Greene King [GNK] at 850p per share. News of the takeover sent Green King’s shares up by more than 50% in the days following the announcement.
The all-cash offer represents a 51% premium on the stock’s price ahead of the news, which was around the 563p mark.
Since the announcement, Greene King’s share price has remained flat at the 840-41 mark.
On 29 August, Royal Bank of Canada [RY] set Greene King’s target price at 850p, up from its previous target price of 700p, but with any movement from its current price unlikely, the bank simultaneously cut its rating. A list of analysts have however raised the stock’s rating, including JP Morgan Chase & Co [JPM], which raised their rating to ‘neutral’, and their target price from 720p to 850p.
|PE ratio (TTM)||21.70|
|Quarterly Revenue Growth (YoY)||1.80%|
Greene King share price vitals, Yahoo Finance, 3 September 2019
Entertainment One jumps on Hasbro buyout
Entertainment One [ETO], the British TV distributor behind Peppa Pig, gained 32% in a day after on 22 August, Hasbro announced it is to acquire the company for £3.3bn.
The toy maker’s offer of £5.60 per share represents a 31% premium to eOne’s average share price over the past month. The bid is about 22 times the media group’s forecast earnings per share for 2019.
eOne’s share price has remained flat after the initial jump, as many see the likelihood of a counterbid, unlikely. Stifel downgraded the company on 27 August from a ‘buy’ to a ‘hold’ in response to Hasbro’s takeover. Its offer was “a sensible price for the existing brands and assets” and a counterbid is unlikely to materialise, according to the firm.
|PE ratio (TTM)||234.07|
|Quarterly Revenue Growth (YoY)||-17.30%|
Entertainment One share price vitals, Yahoo Finance, 3 September 2019
Other UK-listed takeover targets
The three stocks join a list of UK-listed companies that have become targets of takeovers and mergers this year. Other notable deals include the a £2.6bn deal struck between private North American equity firms Apax and Warburg Pincus, and British satellite communications company Inmarsat; the takeover of UK aerospace and defence supplier Cobham [COB] by US private equity firm Advent International for £4bn; and the £6bn buyout of Alton Towers owner Merlin by a consortium led by the family that controls Lego.
Disclaimer Past performance is not a reliable indicator of future results.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.