Listed UK companies have become prime takeover targets in recent years, with foreign buyers eyeing potential bargains trading on the London Stock Exchange.
Online property market Rightmove is the latest FTSE 100 constituent to grab the headlines after Rupert Murdoch’s real-estate firm REA Group announced it was mulling a takeover offer for the British firm.
Rightmove shares initially jumped 24 per cent after news emerged of a potential cash and share offer, demonstrating the gains on offer to investors when bid interest emerges.
Hot property: Rupert Murdoch’s REA Group is in the process of launching a bid to buy Rightmove
Dan Coatsworth, investment analyst at AJ Bell, said a potential offer for Rightmvoe represents the sixth possible takeover situation for a FTSE 100 company this calendar year.
He said: ‘We’ve already seen confirmed bids for the likes of Anglo American, Darktrace and DS Smith, as well as speculation that several parties have been sniffing around Hiscox.’
Why are British companies so attractive to foreign buyers?
UK companies are generally seen as undervalued when compared to their international counterparts.
The UK stock market has a price to earnings ratio of 16.44, compared to the US market’s ratio of 24.82.
This means that the value delivered by UK stocks is far higher relative to the value of company shares.
There are a host of reasons for this, such as a lack of high-quality tech stocks and the shaky political landscape of the past few years.
The UK also has much shallower liquidity on offer than peers in the US market, meaning London-listed companies sometimes suffer from a lack of investor appetite for buying and selling of shares.
Buying British: Burberry could be a potential takeover target
Which firms might be targets?
Clothing brand Burberry has had a rough year, having fallen more than 70 per cent it is now set to fall out of the FTSE 100.
Burberry shares are trading at a 14-year low.
Nevertheless, Burberry remains an iconic British fashion brand, with heritage and a niche that make it attractive despite its troubles, and a viable prospect for a buyer that thinks it can turn these fortunes around.
Coatsworth said: ‘What makes Burberry appealing to a potential buyer is the enduring appeal of its products. There is instant brand association with its chequered patterns.
‘While styles go in and out of fashion, Burberry’s products have stood the test of time and a potential buyer will be focused on the long-term prize.’
‘Any potential bidders would have to see through near-term problems and be confident in the company’s ability to get back on track,’ he added.
‘The decision to take Burberry more upmarket and then heavily discount products to shift unsold stock was a bad move. While shoppers love a bargain, discounting can tarnish a luxury brand as it is perceived to be less desirable.’
Meanwhile, drinks maker Diageo could prove a similar story.
While issues in its Latin American business have weighed on Diageo in recent times, its ownership of products like Johnnie Walker, Baileys and Smirnoff means the group benefits from a devoted customer base to its big-name brands.
On top of this, its stout offering, Guinness, has also recently seen a boom of its own among young drinkers – something that, if it were to continue, could prove an attractive prospect for a potential suitor.
Coatsworth said: ‘While the current news flow is fairly gloomy, Diageo could be a takeover candidate for a bidder looking to own a portfolio of well-known drinks brands and wanting to pick up an industry giant at a big discount to where it has historically traded.
‘The key sticking point is the fact such a takeover deal would require a significant cash outlay, even if the bidder got a bargain price.’
Diageo shares have slumped 23 per cent over the past year.
Coatsworth added: ‘Diageo is currently worth £55billion. Apply a potential 30 per cent bid premium and a suitor would need to stump up a very large amount of money.
‘One route might involve breaking up Diageo, with a beer company taking on Guinness and another company taking on the spirits brands.’
An opportunity to scale up
In many cases, takeover targets offer a prospective buyer an opportunity to scale up their business or move into a new region.
This is the exact opportunity that betting company Entain could provide.
The firm, which owns Ladbrokes, has seen its share value drop by almost half in the past year, having lost its US market share and become bogged down in a bribery investigation.
Nevertheless, Coatsworth says this could provide the means for capitalise on the company’s market-share.
He said: ‘The Ladbrokes owner has previously been subject to takeover interest from MGM and DraftKings, but neither suitor managed to place a winning bid.
‘Since then, Entain’s share price has lagged many of its peers and left it a sitting duck for a third party to swoop on the business.
‘Buying Entain would be an easy way for a rival company to greatly increase scale, something that really matters in the gambling sector.
‘A new CEO joins this week, which raises the prospect of a sweeping review of the business and potentially some strategic changes. The pressure is already on, given activist investors on the shareholder register.’
Similarly, Premier Inn owner Whitbread could allow a buyer to cash in on the firm’s UK-wide presence.
Coatsworth said: ‘While some investors will be disappointed at the company’s situation, there is the potential for Whitbread to be on the radar of private equity or an overseas-based operator looking to get ahead in the UK through buying one of the country’s best-known hoteliers.
‘The shares are trading on a low rating of 12.2 times consensus earnings for the year to February 2026.
‘That bargain-basement rating, together with weak market sentiment towards the stock, could be enough to draw out a bid.
‘Premier Inn is front of mind for consumers looking for affordable accommodation and scores well with tourists seeking decent, reliable hotels when visiting the UK.’
Should you sit tight or sell up?
Richard Hunter, head of markets at Interactive Investor, said: ‘For investors, the current share price of a bid target should be compared to the level which the acquiring company is proposing.
‘These two prices are normally in line, but there can be exceptions such as when the share price exceeds the offered price.
‘This would be because the market believes that either the price being offered is too low, or that the proposed acquisition could flush other potential buyers out into something of a bidding war.’
‘In any event, the general rule of thumb would be for investors to hold tight and await any further developments if a bid emerges for a stock they own.’
Of course, a shareholder should in theory have a say in the outcome of the takeover offer.
While an offer needs to be accepted by a majority of shareholders, and they will be given the chance to vote on the matter, most investors will generally have little say in the decision of whether the offer is accepted or not.
Hunter said: ‘In reality, the largest shareholders are likely to be institutions so the power of retail shareholders to agree or reject any bid is usually extremely limited.
‘Investors should note that the potential for takeover activity is not a sufficient reason to invest, rather it is the icing on the cake should it happen.
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