Are cheap bids stealing good British companies….and are Boards protecting shareholders?

It’s been over three years since Spire Healthcare spurned the advances of South Africa based Mediclinic (a 29.9 percent shareholder) but today it has succumbed to a £1 billion offer from Australian giant Ramsay Health Care.

With 39 hospitals and eight clinics, Spire is the second largest provider of private healthcare in the UK, but is a 24 percent premium all the reward? The Directors hold a paltry 0.3 percent of the company’s shares outstanding and appear to have rolled over quite easily. We wait to hear from  other shareholders with more meaningful positions.

Earlier this month, John Laing accepted a £2 billion offer from US private equity behemoth KKR ($252 billion of assets). This is a business which dates back to 1848 and, among many other projects, it is involved in the £5.8 billion Intercity Express Programme, which will provide 122 Super Express trains for the Great Western Main Line and the East Coast Main Line. Clearly then, a company that will be serving the UK travelling public for many years to come. Perhaps a UK pension would have been a better home?

Though pending regulatory and shareholder approval, there is also a recommended £2.6 billion bid on the table for Dublin based UDG Healthcare from private equity firm Clayton, Dubilier & Rice (CDR). However, the story may not end here, with news that US activist Elliot Investment Management has disclosed a 3.1 percent stake and Allianz, its largest shareholder, is not backing the deal, arguing that it is ‘opportunistic and undervalues the company’s prospects.’ Well done Team Allianz.

Domestic markets have been buoyant since the start of the year, with the London Stock Exchange seeing its best quarter for IPOs since 2007, with £5.2 billion raised on the main market and £441 million raised on AIM. We are delighted that new entrants are choosing London as their home but what about all those long established listed companies that existing investors have chosen to back for the long term?

We feel it’s a sad day when yet  another great British company ends up leaving the market – if all the best businesses get swallowed up at the first opportunity, then the UK equity markets will start to become a bit of a barren hunting ground for investors. Moreover, the growing appetite from foreign companies to steal our best companies is one that we don’t welcome and we feel that Boards should think long and hard before accepting any offers. They have a fiduciary duty to act in the best interests of ALL stakeholders.

Some questions to ponder:

  1. Is a 20-25 percent premium really enough to take such wonderful businesses private?
  2. Why should professional fund managers accept such derisory offers? These mean offers are insulting.
  3. By recommending such offers, is the Board really acting responsibly and – above all – is corporate governance (in spirit, not law) being adhered to?
  4. For how long have these Boards been discussing bid options and with how many counterparties?
  5. From publicly available filings, the Boards in question have scarcely any share ownership and clearly lack an ownership mindset. What assurance do we have that counter-bids were invited to make the process competitive?
  6. Lastly, how can outside non-controlling investors be assured that our interests are being best protected?

Sterling Investments Management Ltd
Lynwood House 2-4 Crofton Road,
Orpington, England, BR6 8QE

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