Amlin plc Soars By A Third On 670p-Per-Share Takeover Offer

Insurance company Amlin plc (LON: AML) has surged by 33% after an all-cash takeover offer

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in Amlin (LSE: AML) are around a third higher today after the company became the subject of a 670p per share all-cash takeover offer from Japanese sector peer, Mitsui Sumitomo Insurance Company. The deal values Amlin at around £3.5bn and represents a 36% premium to its closing price from 7 September of 492.5p and a 32.9% premium to the volume weighted average closing price per Amlin share for the month prior to 7 September.

Crucially, the directors of Amlin consider the deal to be ‘fair and reasonable’ and will recommend that the bid is accepted by the company’s shareholders. In addition, Invesco and Majedie Asset Management have also agreed to vote in favour of the deal, which means that around 16% of Amlin’s shareholders are already openly backing the takeover. And, while regulatory approval is needed, the takeover is expected to be completed in the first quarter of 2016.

Clearly, an offer for Amlin was more likely than for most businesses due to the exceptionally low valuation on which its shares were trading. For example, Amlin’s price to earnings (P/E) ratio stood at just 11.8 prior to the bid, with its price to book (P/B) ratio of 1.38 also an indicator that its shares offered excellent value for money. Furthermore, a dividend yield of 5.7% indicates that Amlin’s shares were cheap and susceptible to bids from rivals seeking to expand and/or diversify their risk profiles.

On the face of it, the deal appears to be a rather generous one since it values Amlin at a significant premium to yesterday’s share price of 493p. And, upon further inspection, this appears to be very much the case. That’s because the offer values Amlin at a P/E ratio of 16 and a P/B ratio of 1.96 – both of which are relatively high when Amlin’s near-term prospects are taken into account.

For example, Amlin is forecast to post a fall in its bottom line of 12% in the current year, followed by a further decline of 7% next year. This may have caused investor sentiment to weaken somewhat in the short run, although a major share price fall was relatively unlikely due to Amlin’s super-high yield, which should have provided support for the company’s valuation. Still, with Amlin’s shares having risen by 25% in the last three years, further capital gains could have proved to be somewhat elusive.

Therefore, the offer appears to be a very good one for investors in Amlin. Certainly, they will be losing a top notch income stock and, while a yield of 5.7% is available elsewhere in the FTSE 350, the reliability that Amlin offers regarding its dividends is rather more difficult to find.

However, all investors in Amlin will make a capital gain on the deal and, alongside dividends received, this means that investing in Amlin has been a worthwhile exercise. And, with the FTSE 100 having fallen by 1,000 points in recent months, the deal provides a useful cash boost through which to buy another high quality company at a deeply discounted price.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Amlin. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »