The standout performer in the FTSE 250 yesterday (25 November) was ITV (LSE:ITV). The share price vaulted 8.65% higher on the day, continuing what has been a volatile few weeks for the stock. I took a deeper look at the news that triggered the move to see if this could be the start of something larger.
Key catalyst for the move
The jump came after news outlets reported over the weekend that the company has been attracting interest for a potential takeover. According to unnamed sources, early-stage discussions have taken place between ITV executives and private equity giants about a potential deal.
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Part of the reason why this might not be fantasy chatter is due to the performance of the share price in recent years. The stock is down 45% over the past three years. The latest annual results for 2023 showed a 41% fall in the earnings per share. Although the H1 2024 results were better, revenue was down 13% versus the same period last year.
Another reason why a takeover could be coming is the perceived benefit and value that could be had in spinning off ITV Studios. This area of the business is seen as the bright spark. The production element is forecast to deliver record profits in 2024. This contrasts to the more traditional advertising division, which has seen falling demand. If the company gets bought out, any buyer could stand to make a profit from selling the profitable Studios arm and then focus on transforming the rest of the firm.
Taking a step back
If discussions get serious and a potential bid is forthcoming, I’d expect it to be at a premium to the current share price. Typically with public buyouts, this is what happens. In that case (or in advance of it) speculative buyers could jump in and push the share price higher.
So although the party might just be getting going from that angle, it doesn’t mean that I’m going to invest. To begin with, no deal might happen. In that case, I have to think, do I want to own the stock even if management is forced to try and resolve problems alone? Or a deal could happen, which would mean that I could make a fast buck but then that’s it. After all, the stock would likely get delisted from the market when it’s all completed.
If I was a specialist investor who focused on mergers and acquisitions, this could be an opportunity to jump at. Yet I prefer buying stocks with a long-term approach. On that basis, it doesn’t matter to me if a short-term rally is sparked from here. Of course, I could be missing out on a good purchase. But buying and selling based on media rumours just isn’t something I go in for these days.
