By Ben Dummett
The U.K. is finally joining the global resurgence in mergers and
acquisitions.
Pinned down by a brutal Covid-19 outbreak and the worst economic
contraction in 300 years, U.K. merger activity slumped in the early
summer from the year-earlier period as part of a broader decline
amid virus-induced lockdowns. In Britain's case, uncertainty over
the outcome of the country's complicated divorce from the European
Union extended that weakness into early fall.
But the fourth quarter marked a rebound in mergers and
acquisitions in the U.K. as a vaccination program raised the
prospect of bringing the virus under control. And Britain's trade
deal, which took effect at the start of January, assured companies
and their advisers that the country's exporters won't face tariffs
and quotas selling into the EU market.
The deal revival is illustrated by MGM Resorts International's
unsolicited GBP8.09 billion, equivalent to $11 billion, bid this
month for the U .K.'s Entain PLC, along with takeover battles for
U.K. companies Signature Aviation PLC, G4S PLC and Codemasters
Group Holdings PLC. At the same time, it reaffirms Britain's
reputation as one of the markets most open to takeover
activity.
Though historically common, these types of contests were largely
absent last year until 2020's final quarter. During that period,
three U.K. targets attracted multiple bidders. That followed two
quarters during the height of the pandemic and Brexit uncertainty
when there were no such standoffs. All told there were four last
year -- the first coming in February, before the pandemic struck
Europe, according to Dealogic.
In another sign of the recent strengthening of activity in the
U.K., overall merger value in the fourth quarter more than tripled
from the year-earlier period to $211.4 billion, following
year-over-year declines in the prior two quarters, according to the
data provider.
In addition to positive sentiment generated by the Brexit deal
and Covid-19 vaccinations, the U.K.'s takeover rules played a key
role. Their effective ban in most cases on the use of break fees in
deals fosters competition. The fees are meant to offer buyers
protection in case a rival offer is accepted. But they reduce the
likelihood of a new bid emerging.
"That means the announcement of a recommended offer in Britain
is often the start rather than the conclusion of an auction
process," said Anthony Gutman, Goldman Sachs Group Inc.'s co-head
of investment banking for Europe, the Middle East and Africa.
The latest bidding contests have centered on sectors that have
proved resilient under Covid-19-lockdowns, such as interactive
entertainment. In other cases, firms pushed back because of the
abnormal market and economic volatility.
On Jan. 4, Las Vegas casino operator MGM confirmed its bid for
gambling firm Entain. It represented a 22% premium to Entain's
stock price on the trading day before the proposal became public.
And it followed a previous nonpublic, rejected bid from MGM worth
about $10 billion, The Wall Street Journal has reported. The
British gambling operator rejected MGM's offer and Entain's
London-listed stock closed at GBP14.02 on Friday, above MGM's bid
of GBP13.83.
Entain's negotiating position to seek a higher offer is
strengthened by the support of some of its biggest shareholders.
"The first two shots from MGM are not enough," said Wesley McCoy, a
fund manager at Standard Life Aberdeen PLC, which owns almost 6% of
Entain, according to FactSet data. "If that's the only offer we
get, that's fine; c'est la vie."
It is unclear if MGM will pursue its effort. The company has
said it planned to discuss the proposal with Entain. Tyler Tebbs,
an analyst at Louis Capital Markets, estimates Entain could be
worth around GBP16 a share, or GBP9.4 billion, in part reflecting
the access MGM would gain to the growth in online betting.
Increased consumer spending on interactive entertainment also
explained the interest in Codemasters. U.S. videogame maker
Electronic Arts Inc., whose franchises include "Battlefield," last
month offered $1.25 billion to acquire the auto-racing game
developer. That was 25% more than a prior bid from rival Take-Two
Interactive Software Inc., publisher of "Grand Theft Auto."
Until Wednesday, Codemasters' stock had traded above Electronic
Arts' offer as investors bet on a higher bid. But Take-Two bowed
out last week, ending the standoff. Still, Codemasters shareholders
stand to generate a 39% gain from the day before Take-Two's first
offer becoming public.
The bidding for Codemasters is one of at least three deals in
the U.K. involving multiple bidders that emerged publicly in the
latter part of last year and have spilled over into 2021.
Global Infrastructure Partners, a New-York-based private-equity
asset manager, last week struck a $4.6 billion deal to acquire
Signature Aviation, a provider of services to the private-jet
sector. That trumps the latest sweetened $4.3 billion takeover
proposal from rival PE firm Blackstone Group Inc. The private-jet
industry stands to benefit amid the Covid-19 pandemic as rich
fliers avoid crowded commercial flights. Blackstone, working
exclusively on its offer with Bill Gates' Cascade Investment LLC,
Signature's biggest shareholder, has yet to indicate if it will
challenge GIP's bid.
Meanwhile, Carlyle Group Inc., another buyout firm, has
indicated it might make an offer. Signature's stock is trading
about 6% above GIP's offer.
Another battle pits Canada's Garda World Security Corp. against
security-services rival Allied Universal Group of the U.S. to
acquire U.K.-based rival G4S. The still undecided winner will
ultimately pay at least GBP3.8 billion, or about 69% more than
Garda World's original offer of about GBP2.24 billion in the
summer. Yet investors continue to bet on a higher price.
--Paul Hannon contributed to this article.
Write to Ben Dummett at ben.dummett@wsj.com
(END) Dow Jones Newswires
January 18, 2021 05:44 ET (10:44 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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