The heat that has gripped the City of London in the past week has been equalled by the ferocity of bid fever.
Powerful US predators continue to stalk the UK markets, seeking bargain targets.
On Friday, the $68bn American investment house Apollo Global Management swooped in with a £5.7bn bid for easyJet.
Just days before, the airline had said ‘yes’ to a £5.5bn offer from another US group, Castlelake.
Meanwhile, Segro – the FTSE 100 real estate investment trust (Reit) – is also at the centre of an increasingly vicious takeover bid.
This smash-and-grab raid on UK plc is one of the easiest ways for private investors to make money just now, with fresh rumours emerging almost every day.
The pub group Young & Co, for example, may be prospering from the sunny weather and World Cup celebrations.
US vultures: There have been rival bids for airline Easyjet
But it could become the object of desire for a US or other foreign suitor since, as Amisha Chohan of wealth manager Quilter Cheviot points out, its £492m market capitalisation does not reflect its profit margins or its freehold London property estate.
But the mounting speculation about such household names is not only an alert to check whether you are positioned for more bid action, it is also a signal to reset your long-term relationship with British stocks.
Our pension funds’ regrettable failure to invest in British stocks means they are seen as bargain buys.
But the swallowing up of our companies is shrinking our stock markets, which is bad news for the economy.
If you think now is the time to back Britain for your good – and that of the country – this is our guide to what’s happening… and why and how to make the most of it.
Selling family silver
The pace of deals is picking up, indicating that you should ensure you have widespread exposure to UK plc through individual shares and funds.
As Georgina Hamilton and George Godber, managers of the Polar Capital UK Value Opportunities fund, put it: ‘Britain is the cheapest developed nation stock market in the world.’
But UK shares may have other attractions. Hamilton and Godber say FTSE 100 names are not only inexpensive but also come equipped with better management teams than in the past.
More chief executives have risen up through the business, giving them a superior level of insight on ways to achieve growth and win customers.
The bids for easyJet and Segro made the headlines this week, but it was also announced that Sky – a division of the US entertainment giant Comcast – is paying £1.2bn for ITV’s broadcast and streaming division.
The fate of these household names explains why brokers Peel Hunt warn that Britain is ‘selling the family silver’.
Peel Hunt calculates there has been £61bn of deals this year for UK-listed firms, including insurance broker Beazley; the 202-year-old investment bank Schroders; ingredients group Tate & Lyle; and lab testing specialist Intertek, which is being bought for £9.4bn by EQT, a Swedish private equity player.
We regard these British companies as the ‘family silver’ because their names are familiar.
But they have broad shareholder bases, making them easy to acquire, unlike large European companies where families are often the majority investors.
These dynasties’ disinclination to countenance selling their enterprise is an effective deterrent to bidders.
Share prices this year: DCC and Easyjet have been the big winners
Postcode discount
The term ‘postcode discount’ is being used to explain why British companies are so alluringly inexpensive.
A UK company tends to be valued far less generously than a US company of comparable scale and calibre.
Prologis, the world’s largest owner of industrial property, is hoping to pick up Segro for £12.6bn or 925p-a-share.
This week, Segro chief executive David Sleath denounced the Prologis offer as ‘inadequate’ – something of an understatement since the property consultancy CBRE estimates the company is worth close to £18bn.
The CBRE estimate underlines the size of the discount at which Segro shares are still trading, despite their 20pc bounce this year.
This gap between the book value of the Reit’s assets and the share price is the consequence of fears over the impact of higher interest rates on Reits.
Prologis may not wish to stump up more money, but it may be compelled to do so. If you have a stake in Segro, you should probably stay put.
You may want to keep the faith with other Reits, too. Chohan argues they could start to look like interesting prospects.
Energy group DCC is another example of a FTSE 100 company that could be worth more elsewhere. KKR and ECP, two US private equity groups, are offering £5.75bn.
But Aviva, Fidelity and other fund managers with stakes in DCC say that this ‘significantly undervalues’ the business.
Again, if you own some DCC stock, maybe hang fire.
The next targets
Such is the stampede for a slice of UK plc that Hamilton and Godber believe that even FTSE 100 mining companies and banks could be targets.
Earlier this year, Rio Tinto was in merger talks with rival mining titan Glencore to form a conglomerate that would feed AI’s appetite for copper.
Negotiations foundered and Rio shares have tumbled by 8.6 per cent this month.
The suggestion that HSBC, Lloyds and NatWest could pass into the control of a foreign financial institution will raise eyebrows. But among the Wall
Street groups rumoured to be interested is investment bank JP Morgan Chase.
Whispers of bids surrounding the banks may reignite the on-off speculation over Legal & General.
As Chohan observes, the insurer could suit a US private equity firm seeking a foothold in the UK annuities and pensions market.
The race is now on to spot companies with the credentials that appeal to private equity.
These include a strong position within their market, lots of cash flow but not debt, so that more can be added after the takeover.
Broker AJ Bell says Autotrader, DFS Furniture, Dr Martens, Dunelm, Howden Joinery, JD Sports Fashion, Moonpig and Watches of Switzerland fit the bill.
As this column told you in May, corporate Britain is up for grabs. You may not like it, but putting some cash into UK shares could win you a takeover windfall or an investment that appreciates and stays British.
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