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For a few years, I’ve argued that UK shares are too low cost. In the meantime, the FTSE 100 and FTSE 250 have just about gone nowhere for 5 years.
And whereas London shares look low cost, each in geographical and historic phrases, some FTSE 350 shares are deeply undervalued. Certainly, I urged at end-2023 that this yr may be massive by way of takeover approaches for unloved British companies.
One more bid
My guess was that there can be 5 to 10 takeover bids for giant London-listed firms in 2024.
As luck would have it, information of 1 broke on Saturday (17 February). The most recent firm to enter the sights of well-financed bidders is high-street digital chain Currys (LSE: CURY).
Based in in August 2014, Currys introduced collectively two well-known retail manufacturers: Dixons Retail and Carphone Warehouse. Right this moment, the group has 815 shops throughout eight international locations, after closing all 531 UK Carphone Warehouse shops in the course of the Covid-19 pandemic.
Alas, shareholders in Currys have had a tricky time for years. As I write, the share value has dived 37.1% over one yr and crashed by nearly two-thirds (63.7%) over 5 years.
What’s extra, on 23 April 2021, the Currys share value closed at 156.2p, close to to its five-year excessive. On Friday (16 February), the inventory completed at 47.08p. This values the group at £536.6m — a fraction of former highs.
And similar to on the planet of nature, it’s when firms are weak and share costs have slumped that predators pounce. Currys has obtained an unsolicited supply from Elliott Administration, a number one US activist investor, hedge fund and private-equity agency.
On Saturday afternoon, Currys’ board introduced that it had on Friday unanimously rejected a money bid priced at 62p a share. That is practically a 3rd (+31.7%) larger than that day’s closing value, valuing the chain at simply over £700m.
Let the dance start
Which means the mergers and acquisitions (M&A) dance has begun for one more undervalued UK-listed firm.
Usually, this dance begins by the goal’s board rejecting the preliminary strategy, arguing that this primary bid “considerably undervalues” the enterprise. Currys obliged by saying precisely this on Saturday, after Elliott earlier admitted it was contemplating a money supply for the group.
What usually occurs subsequent is that the potential acquirer comes again with a second, improved supply. Usually, this tends to be 10% to twenty% larger than the primary supply. Steadily, a 3rd, larger value is unveiled, at which level many M&A dances finish with a profitable buyout.
In fact, there’s no certainty that Elliott will certainly make a proper supply for Currys. As a substitute, it might select to stroll away if the numbers don’t stack up at the next value. Nonetheless, below UK takeover laws, it has till 16 March to make a agency supply or stroll away.
When the inventory market opens on Monday morning, I anticipate the Currys share value to leap to a degree approaching the 62p-a-share supply. This low cost will steadiness the chance of the deal going forward with the chance of a better bid rising.
This backs my long-held feeling that far too many UK-listed companies are wildly undervalued. Additionally, I hope much more worth might be unlocked on this method for long-suffering shareholders in 2024-25!
