UK market indices are down today as investors and traders began to develop some skepticism following Friday’s Brexit news rally. To recap, the domestically focused FTSE 250 was up more than 4% on the day at the close of business last week, due to news that the EU Commission had given lead Brexit negotiator Michel Barnier permission to begin talks on a new deal with Prime Minister Boris Johnson.
The pound also traded up on the news, reaching $1.26 against the US dollar, the highest level it has reached since Johnson’s premiership began.
However, what goes up has a strong tendency to come back down. The FTSE 250 is down almost a full percentage point today on comments from Barnier indicating that a deal is still far from completion.
The pound has also weakened. Over the weekend, Barnier referred to the UK’s proposed Irish border plans as “an untested risk”, and urged both sides to intensify negotiations ahead of the EU summit this Wednesday. In short, it doesn’t appear that we are really any nearer to resolving the crisis, and the probability of a no-deal Brexit on 31 October continues to rise.
Sophos
In terms of individual stocks, the biggest winners today are undoubtedly shareholders of Sophos (LSE: SOPH). Shares of the cybersecurity business are up more than 36% today due to news that US private equity firm Thomas Bravo is set to buy Sophos with a $3.9bn (£3.1bn) takeover offer.
The deal provides existing shareholders of Sophos with a very healthy 37% premium at $7.40 per share (£5.88), compared to where the firm was trading on Friday.
The deal still needs the approval of Sophos’ board of directors, but it appears that they will green light the arrangement, which certainly seems to be quite generous. It should also be noted that Sophos debuted on the public markets in 2015, at a market capitalisation of £1bn, so shareholders who have been in from the beginning have enjoyed a very healthy return on their invested capital.
Although this is the first non-US acquisition for Thoma Bravo, there has been an increasing pattern of UK-based companies being bought out by foreign investors. The key driving factor in this trend has been the fall in the value of the sterling, as it has made pound-denominated assets cheap relative to those priced in other developed market currencies. However, although Sophos’ ownership is moving overseas, the company itself is likely to remain based in Oxfordshire.
A no-deal Brexit is likely to have many negative impacts on the British economy. However, an overlooked consequence of such a scenario could be an increased rush by foreign capital to buy up British assets on the cheap. It is difficult to say how exactly this will impact the domestic economy, but it does seem like the kind of thing that will have serious political consequences.
