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Listed British companies have become prime takeover targets in recent years, with foreign buyers keeping an eye on potential bids traded on the London Stock Exchange.
Online property marketplace Rightmove is the latest FTSE 100 member to hit the headlines after Rupert Murdoch’s property firm REA Group announced it was considering a takeover bid for the British firm.
Rightmove shares It initially rose 24 percent after news of a potential cash-and-stock offer emerged, demonstrating the profits on offer to investors when interest in a deal arises.
Property boom: Rupert Murdoch’s REA Group is in the process of launching a bid to buy Rightmove
Dan Coatsworth, investment analyst at AJ Bell, said a potential bid for Rightmvoe represents the sixth possible takeover scenario for a FTSE 100 company this calendar year.
He said: “We have already seen confirmed bids from the likes of Anglo American, Darktrace and DS Smith, as well as speculation that a number of parties have been sniffing around Hiscox.”
Why are British companies so attractive to foreign buyers?
UK companies are generally considered to be undervalued compared to their international counterparts.
The UK stock market has a price/earnings ratio of 16.44, compared to the US market’s ratio of 24.82.
This means that the value delivered by UK shares is much higher relative to the value of company shares.
There are a number of reasons for this, including the lack of high-quality tech stocks and the unstable political landscape of recent years.
The UK also offers much lower liquidity than its US market peers, meaning London-listed companies sometimes suffer from a lack of investor appetite to buy and sell shares.
Buy British: Burberry could be a potential takeover target
Which companies could be targets?
Clothing brand Burberry has had a tough year: after falling more than 70 per cent, it is now set to leave the FTSE 100.
Burberry shares are trading at a 14-year low.
Yet Burberry remains an iconic British fashion brand, with a heritage and niche that make it attractive despite its troubles, and a viable prospect for a buyer who believes it can reverse these fortunes.
Coatsworth said: “What makes Burberry attractive to a potential buyer is the enduring appeal of its products. There is an instant association of the brand with its check patterns.
‘While styles go in and out of fashion, Burberry products have stood the test of time and a potential buyer will focus on the long-term prize.’
“Any potential bidder would need to look beyond the short-term problems and have confidence in the company’s ability to get back on track,” he added.
“The decision to take Burberry into higher-end products and then heavily discount them to get rid of unsold stock was a bad decision. While shoppers love a deal, discounts can hurt a luxury brand as it is perceived as less desirable.”
Meanwhile, drinks maker Diageo could tell a similar story.
While problems in its Latin American business have weighed on Diageo in recent times, its ownership of products such as Johnnie Walker, Baileys and Smirnoff means the group benefits from a customer base devoted to its big-name brands.
On top of this, its stout offering, Guinness, has also recently experienced its own boom among younger drinkers, something which, if continued, could prove an attractive prospect for a potential suitor.
Coatsworth said: ‘While the current news flow is rather bleak, Diageo could be a takeover candidate for a bidder looking to own a portfolio of well-known drinks brands and wanting to acquire an industry giant at a deep discount to where it has historically traded.
‘The main sticking point is the fact that such an acquisition would require a significant cash outlay, even if the bidder were to secure a bargain price.’
Diageo shares have fallen 23 percent over the past year.
Coatsworth added: “Diageo is currently worth £55bn. If a potential bid premium of 30 per cent was applied, a suitor would have to fork out a very large sum of money.
‘One route could involve breaking up Diageo, with one brewing company taking over Guinness and another company taking over the spirits brands.’
An opportunity to climb
In many cases, acquisition targets offer a potential buyer the opportunity to expand their business or move into a new region.
This is exactly the opportunity that the Entain bookmaker could provide.
The firm, which owns Ladbrokes, has seen its share value nearly halve in the past year after losing its US market share and becoming ensnared in a bribery investigation.
However, Coatsworth says this could provide the means to capitalise on the company’s market share.
He said: ‘The Ladbrokes owner had previously been the subject of takeover interest from MGM and DraftKings, but neither suitor was able to submit a winning bid.
‘Since then, Entain’s share price has lagged behind many of its peers and left the company in an awkward position for a third party to swoop in.
‘Buying Entain would be an easy way for a rival company to massively increase its scale, something that really matters in the gaming sector.
“A new CEO is coming on board this week, raising the prospect of a thorough review of the business and possibly some strategic changes. The pressure is already on, given that there are activist investors on the shareholder register.”
Similarly, Premier Inn owner Whitbread could allow a buyer to take advantage of the company’s UK-wide presence.
Coatsworth said: ‘While some investors will be disappointed by the company’s situation, there is a chance that Whitbread could be on the radar of a private equity or overseas-based operator looking to make inroads into the UK by buying one of the country’s best-known hoteliers.
‘The stock trades at a low-end rating of 12.2 times consensus earnings for the year to February 2026.
‘That bargain rating, coupled with weak market sentiment toward the stock, could be enough to trigger a bid.
‘Premier Inn is a popular choice for consumers looking for affordable accommodation and is highly rated by tourists looking for decent, reliable hotels when visiting the UK.’
Should you wait or sell?
Richard Hunter, director of markets at Interactive Investor, said: ‘For investors, the current share price of a target company should be compared to the level proposed by the acquiring company.
‘These two prices are usually aligned, but there can be exceptions, such as when the share price exceeds the offered price.
‘This is likely because the market believes that the price offered is too low or that the proposed acquisition could drive out other potential buyers and trigger a kind of bidding war.’
‘In any case, the general rule would be for investors to hold on and wait for further developments if an offer arises for a stock they own.’
Of course, in theory a shareholder should have a say in the outcome of the takeover bid.
While an offer must be accepted by a majority of shareholders, and they will be given the opportunity to vote on the matter, the majority of investors will generally have little say in deciding whether or not the offer is accepted.
Hunter said: ‘In reality, the largest shareholders are likely to be institutions, so the power of retail shareholders to accept or reject any offer is usually extremely limited.
‘Investors should keep in mind that the potential for acquisition activity is not a sufficient reason to invest, but rather the icing on the cake should it occur.
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