Stock markets are wobbling, but £10bn cash bids at fat premiums can still happen
It was a bad day for the FTSE 100 index on Tuesday – down 1.4% – but the puzzle in many quarters is why share prices haven’t fallen further since the start of the US-Israel war on Iran.The index is still up by a couple of percentage points since new year, which is not a bet most would have made at the time if they had been told an inflationary energy price shock lay around the corner.An absence of Iran-related corporate profits warnings partly explains the relative resilience, even if those usually take a while to arrive.So, too, the fact that the Footsie is overpopulated with overseas earners for whom the US economy, which isn’t suffering Europe’s soaring natural gas prices, matters more than their home market.
And higher oil prices obviously help the likes of Shell and BP.Then there’s an additional factor: £10bn cash takeover bids at fat headline premiums can still materialise.Welcome to Swedish private firm EQT’s pursuit of Intertek, the product testing and quality inspection company.Tuesday’s £58-a-share proposal was an increase from £54 and, before that, £51.50.
Since EQT did not label its offer “final”, there is still a chance of another nudge before next week’s “put up or shut up” deadline.Intertek’s business isn’t obviously vulnerable to strait of Hormuz-related disruption.Its consumer-facing operations test everything from toys to food to electronic equipment.Its energy and infrastructure division, doing tasks such as sampling cargoes of oil for contamination, may even be helped modestly by exposure to the US.This scrap is really a conventional one about price.
EQT can say its offer is 54% above Intertek’s £37.70 share price before the fun started, which normally counts as a punchy premium.In the other corner, Intertek could argue that its shares were £45 in March before news of weak growth, and it has subsequently launched a strategic review to explore a value-enhancing (it hopes) separation of the two divisions.That breakup idea is the critical subplot since EQT would probably consider the same route if it gets control.The lower-returning energy and infrastructure division is seen as ripe for sale or demerger.
The financial prize would be earned by getting the consumer-related operation valued in line with its higher-rated main US rival, UL Solutions.EQT would obviously try to run Intertek better as well but, as RBC’s analyst puts it, “transatlantic valuation arbitrage” seems to be part of logic.So a question for Intertek’s board, which dismissed the first two offers, is whether it thinks a breakup under its own steam would get more value than £58 per share eventually.Factors to consider include the time it would take, but also that a few City brokers put the sum of Intertek’s parts at £60 or slightly more.EQT’s pitch, then, is the appeal of hard upfront cash.
Intertek’s response to £58 is awaited but, intriguingly, its board does not appear to be under much pressure from shareholders to roll over and capitulate.If it were, one would expect the closing market price on Tuesday (£50.90) to be closer to EQT’s proposal.The picture can change, of course, but it is still curious that a cash bid at a 54% premium in a wobbly stock market isn’t a done deal.Yes, it’s only one stock.
But it suggests investors’ price expectations have not yet been shifted by the war.
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