Wake-up call for investors

WHAT a week. It started with takeover bids for two of the UK’s top defence businesses, Ultra Electronics and Meggitt – valuing them at nearly £10bn – and ended late on Thursday evening with a cracking £7bn offer for Morrisons.

With Morrisons’ shares above the higher offer from the Us private equity firm Clayton, Dubilier & Rice – where ex-Tesco boss sir Terry leahy is leading the charge – investors are hoping for an all-out bidding war.

They are betting that softbank-backed Fortress is going to return to the table with a higher price to clinch the deal and get the backing of the board.

so far, Fortress has urged shareholders to hold fire on accepting the offer. That puts even more pressure on the usually-gruff leahy as he goes about his charm offensive to win shareholders to his side.

At Meggitt, investors are also praying for more juice. They are betting on a rival offer for the company, which this week agreed a 800p a share offer from Us defence giant Parker Hannifin, valuing the group, which makes parts for fighter jets, at £6.3bn.

Meggitt’s shares are now 839p, indicating that investors expect the Us private equity boys at Transdigm to come up with a higher offer by the september 14 deadline.

If Transdigm comes forward – there have been mutterings of 900p a share – Meggitt’s board will face the tough choice of backing a higher price from a firm with the reputation for being an asset-stripper, rather than a lower one from Parker. Not an easy one.

What everyone wants to know now is – who is next on the takeaway menu?

Britain’s bidding frenzy shows no sign of abating: analysts at Quest, part of Canaccord Genuity, have picked out more than 200 UK companies vulnerable to takeover.

More specifically, they have targeted 177 stocks with a market capitalisation below £1.5bn, which have a free cash yield above 10pc – equivalent to nearly a quarter of the UK market. This is unprecedented and shows the true extent of the undervaluation of ‘UK plc’ relative to global peers.

The FTsE All share Index has recovered much of its downturn since Brexit but prices are still around 15pc lower compared to their Us and European counterparts.

Which is why foreigners will continue hoovering up British assets. At the latest tally, the value of takeovers – both public and private – for British companies so far this year is around £150bn. Three-quarters of these bids were from foreign companies with nearly half of them Us and private equity firms with a fistful of cheap dollars.

With any luck this spending spree will be a wake-up call for UK – and foreign – asset managers and investors to smell the roses, and the true value of corporate UK.

(On this front, check out the latest share price of Babcock, another key defence contractor, and sainsbury’s. They have been shooting up all month).

There are two lessons to draw from these sell-offs. Britain’s bosses need to be more ambitious about their prospects, to spell out their message more strongly to investors and to believe more in their own value.

Investors need to grow some spine and take a longer-term view of risk: they could even make more money by hanging on.

staying independent is an option.

Celebrations

THIs is not just an upgrade, it’s a Marks and spencer upgrade.

Apologies for the quip but the news that M&s has raised its profit guidance after a bounce in food and clothing sales calls for special measures.

All credit to Archie Norman and steve Rowe, who have played the long-game, persuading customers and investors alike to hang on and trust them.

They deserve to crack open the bubbly after reporting sales higher than before the pandemic in food and clothing, where doing less is turning out to be more.

The shares celebrated too, with a 14.1pc jump to 162.8p, still down on pre-Covid levels but a start on the way back to recovery.

Hopefully, a rapid one too: M&s is one of those picked out by Quest as a bid target.