Boards of listed firms warned as risk of hostile bids rises

Pinsent Masons has urged firms to put defences in place. Picture: Daniel Leal-Olivas/AFP/Getty Images
Pinsent Masons has urged firms to put defences in place. Picture: Daniel Leal-Olivas/AFP/Getty Images
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Boards of stock market listed firms are being warned to be on their guard after figures showed a significant number of takeover approaches are hostile.

Figures released today by law firm Pinsent Masons showed that hostile or unsolicited approaches made up 16 per cent of all takeover bids for UK listed businesses in the year to November.

The 12 hostile bids had a value of £36.8bn during the period, just over half of the total value of all bids at £72.3bn.

Pinsent Masons said the figures underline the importance of management teams having defence measures in place.

Hostile bids seen during the year included the approach made by Norway’s DNO for Aberdeen’s Faroe Petroleum which eventually proved successful. The year also saw an approach from Hong Kong Exchanges for London Stock Exchange which was subsequently withdrawn, a bid for Just Eat from Takeaway.com and a bid for G4S by Garda World Security.

Pinsent Masons says depressed valuations of UK listed businesses due to Brexit uncertainty has made them a more attractive takeover target for foreign buyers which may have encouraged more opportunistic bids.

'We expect more hostile bids'

Julian Stanier, partner at Pinsent Masons which has offices in Edinburgh, Glasgow and Aberdeen, said: “If the valuation gap between UK plc and their peers in the US and elsewhere widens further then we can expect to see more hostile bids.

“Boards of UK companies feel, understandably, uncomfortable about recommending a bid when their share price has been 'artificially' low over a lengthy period. The board will want a takeover premium on top of a 'normalised' share price before endorsing a bid.”

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Stanier said high corporate cash balances and cheap debt also means many corporates are sitting on enough financial firepower to move quickly and without the endorsement of the bidder’s board and stressed the importance of management teams having defence measures in place.

These include maintaining a close relationship with shareholders and staying alert to stake-building by investors to help identify potential hostile bids. If an approach is made by a hostile bidder, pre-approved scripts should be used in any telephone conversations along with requests for any details be put in writing before a meeting to buy valuable time for businesses to assess their options.

Stanier said in the current climate, if a UK business is trading at a low valuation and has a high market share or owns sought after assets then it will attract attention from potential buyers and their advisers.

“The management of a business has a natural advantage over a hostile bidder because it has an innate understanding of the business itself. Those who pre-emptively predict the value creation strategies that could be deployed by a bidder will be the ones that remain independent,” he said.