Mining giant Anglo American, cyber security firm Darktrace and Royal Mail parent IDS — three major UK companies in the midst of big takeover bids.
AFP examines what has made the trio attractive to suitors abroad:
– Weak pound –
Long-standing weakness for the British pound, particularly against the dollar, makes UK-listed companies appear cheap for US buyers.
Sterling has struggled in the last few years owing to a weak economy, caused in part by Brexit, according to many analysts.
Recent added pressure has come from expectations that the Bank of England will soon start to cut interest rates as inflation cools, according to Russ Mould, analyst at AJ Bell trading group.
– Undervalued –
Although London’s top-tier FTSE 100 index has shown strength in recent months with a series of record highs, its listed companies are still regarded as undervalued compared to US peers.
The “gap is extremely high right now”, said Mould.
“One could argue there are all sorts of reasons for that, but frankly American companies are just meaner, certainly more willing to maximise the flexible nature of workforces, quicker to hire and fire, and probably more focused on the stock price,” he added.
Investors focus on price-earnings ratio of a company — data that can help to reveal whether a business is under or over valued.
A low P/E ratio can indicate that a company’s share price is low relative to earnings and vice versa.
For FTSE 100 companies, the average P/E ratio stands at around 10.5, far below the 24.8 figure for the S&P 500 on Wall Street.
The gap can be explained by massively-rich technology companies dominating US indices, such as Amazon, Apple, Google and Microsoft.
By contrast, London’s biggest players include more traditional sectors such as oil and gas plus mining and finance.
Against this background, UK companies are choosing to have a primary listing on Wall Street, as was the case with chip designer Arm in late 2023, while energy giant Shell has hinted it could cross the Atlantic.
According to UK regulator, the Financial Conduct Authority, requests to float on the London Stock Exchange are at the lowest level in about six years.
– Sector attractiveness –
Top UK companies currently targeted by overseas investors offer also individual reasons for their attractiveness.
Australian miner BHP wants UK-listed Anglo American primarily for its copper assets.
Copper, whose price has soared to new all-time highs in recent times, is a vital metal in the production of greener technology, including energy storage, electric vehicles, solar panels and wind turbines.
Anglo last week rejected a third offer worth $49 billion. On Wednesday it rebuffed a BHP request to extend talks beyond a 1600 GMT deadline.
However, US private equity firm Thoma Bravo has struck a deal to buy cyber security company Darktrace for $5.3 billion in cash.
The American group has highlighted Darktrace’s “capability in artificial intelligence” amid rising cyber security threats.
Elsewhere, International Distributions Services (IDS), owner of Royal Mail, has agreed a £3.6-billion ($4.6 billion) takeover by Czech billionaire Daniel Kretinsky.
He is seen wanting to get hold especially of GLS — the parcel, logistics, and express delivery service belonging to IDS — amid an e-commerce boom.
Kretinsky’s conglomerate EP Group is eying also a turnaround at Royal Mail, the former nationalised postal service which has seen its core letters business suffer in the age of emails and text messages.
– Best year since pre-Covid –
Overall, takeover interest for London-listed companies has swelled this year, with the value of bids reaching their highest level since 2018, or before the Covid pandemic and Britain’s departure from the European Union.
London-listed firms have together received takeover bids worth more than £61 billion since the start of 2024, with the majority coming from overseas buyers, according to data from Dealogic.
Among domestic deals agreed this year, British housebuilder Barratt is set to buy UK competitor Redrow for £2.5 billion, subject to regulatory approval.
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