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Bids for two of the UK’s biggest corporate names face a key deadline this week, with Royal Mail’s owner and Anglo American both edging closer to being sold as overseas bidders vie for relatively cheap British companies.
UK regulations set a deadline for bidders to make a firm offer or walk away. For both companies, this latest milestone is the end of the day on Wednesday. Czech billionaire Daniel Křetínský is in talks to acquire Royal Mail owner International Distribution Services in a £5bn deal, while Australian mining group BHP is attempting to seal a £39bn takeover of Anglo American. The offer date can be extended only at the request of the target company.
The double deadline highlights the flurry of recent takeover activity in the UK, as foreign bidders seize on discounted stock market valuations to snap up assets at bargain prices. M&A involving listed British companies is at its highest level by value since 2018, according to Dealogic, while IPOs have been scarce, leading to a decline in the number of public companies. That trend is not expected to abate, even with the uncertainty of July’s general election.
“There are still so many high quality global companies listed in the UK and the valuation gap to the US — even with the market going up — is still enormous,” said Philip Noblet, head of UK & Ireland Investment Banking at Jefferies, who expects more takeovers over the coming months. “If anything the pace is increasing because there are concerns on the buy-side that the market is going to start to correct.”
Only last week, UK retail investment platform Hargreaves Lansdown said it had rejected a nearly £5bn takeover approach from a group of private equity firms including CVC.
Sian Evans, Citi’s head of UK M&A, said she felt that M&A activity was “near as high as I’ve seen it” while Kate Cooper, an M&A partner at law firm Freshfields, noted what she called an “amazing confluence at the moment of a lot of strategic bidders . . . Boards are finding their appetites back after a period of less certainty.”
Both Křetínský’s EP Group and BHP have hurdles to clear in order to execute the deals.
The board of IDS has said it was “minded to recommend” the offer from EP Group, but talks are ongoing, postal worker unions have raised concerns, and the UK’s general election on July 4 adds an extra dimension.
The Labour party, which is far ahead in opinion polls, has promised to “safeguard” the Royal Mail and has sought confirmation from Křetínský that the business would continue to be run from the UK.
Meanwhile, BHP’s pursuit of Anglo American faces several challenges. Anglo has already rejected three offers and both sides would have to agree on the structure. BHP wants Anglo to spin off two South African units as a condition of any deal.
Politics is also a feature of this deal: BHP’s proposed structure has prompted consternation among some of South Africa’s politicians, while Wednesday’s bid deadline coincides with the country’s general election.
If both bids succeed, the FTSE 350 could lose two more companies. UK chancellor Jeremy Hunt told the Financial Times last month that companies leaving the stock market “shouldn’t worry us at all” and was “part of how capitalism works”.
But the government has been trying to reform stock market and pensions rules in an effort to arrest the decline in the number of UK listings, a strategy the Labour opposition has broadly backed.
Dealmakers said that Labour’s extensive outreach to business should mitigate some uncertainty around the election result.
“We’re cautiously optimistic that this momentum of dealmaking will continue for the rest of the year,” said Richard Butterwick, a senior M&A lawyer at Latham & Watkins. “There will be increased scrutiny of the Labour policies that are emerging, and how those could generate gradual M&A focus in certain sectors.”
