The environment is currently perfect for UK-listed firms to be acquired by international peers. With sterling trading at one of the lowest levels in recent history, UK listed businesses are essentially on special offer.
A 20% decline in the value of sterling against the dollar has given US companies a 20% discount when buying UK peers. For some US firms, this offer has already been too good to pass up with Rupert Murdoch’s Fox returning at the end of last year to make an offer for the rest of Sky that it doesn’t already own.
It’s unlikely that this will be the last deal for a UK firm inspired by currency weakness. Two companies, in particular, look to be prime candidates for an overseas buyer.
Fashion on sale
Burberry (LSE: BRBY) has long been considered a potential takeover target. The company’s presence in Asia and ability to continue to grow sales while the rest of the retail industry is struggling are two traits that any acquirer would be more than willing to pay up for. Sterling’s weakness may be the catalyst that inspires a potential buyer to come forward.
Indeed, last December US rival Coach reportedly made multiple takeover attempts for Burberry, but neither side could reach a deal.
Burberry doesn’t need a takeover to rescue it anytime soon. The company expects to end its financial year in March with cash of £665m. Third quarter same-store revenue growth rose 3% across the group with store sales growth of 40% in the UK mainly thanks to the slump in sterling.
Shares in the company have outperformed the rest of the luxury goods sector by 18% over the past 12 months, which shows investors are clearly more optimistic about the outlook for Burberry than that of its peers. Management will be aware of this, so it’s likely it will demand a high premium from any would-be acquirer.
Valuable content
As well as Burberry, ITV (LSE: ITV) looks like it could succumb to a takeover this year. As the advertising market weakens, the City is concerned about ITV’s prospects as a standalone company.
However, for a potential acquirer, such concerns are irrelevant as a buyer would likely buy ITV to get its hands on the company’s lucrative content library and production arm. Given that shares in the company have fallen from a high of £2.70 in February of last year to around £2.00 today, ITV must look extremely attractive right now for any interested parties.
John Malone’s Liberty Global already owns a 9.9% stake in the business and is the obvious candidate for any acquisition, but in the past few weeks, it has emerged that major shareholders of ITV have also been sounded out by tech giants Apple, Amazon and Netflix about a possible takeover. A price tag of 300p per share is being quoted as the negotiating figure. As of yet, no deal has been announced but these tech giants are all flush with cash, and if the price is right, I wouldn’t rule out an agreement in the next 12 months.
