Foreign Buyers Capitalize on Undervalued UK Companies, Analyst Says
A prominent financial commentator points to EasyJet's takeover bids as evidence of British firms being undervalued by domestic markets.
British companies are being significantly undervalued, creating opportunities for foreign buyers, according to financial commentator Maggie Pagano. She highlights the interest from U.S. private equity firms in budget airline EasyJet as a prime example of this trend.
EasyJet's shareholders have seen a substantial increase in their share value following a rival takeover bid from U.S. firm Apollo, which gatecrashed an earlier offer from Castlelake. Apollo's offer of £7.15 per share represents a significant premium to EasyJet's share price before Castlelake's initial interest was declared in late May. Castlelake has until next month to potentially increase its offer.
The airline's board has indicated it is 'inclined' to recommend Apollo's bid. However, EasyJet shares are still trading below Apollo's offer, suggesting market concerns about whether the takeover will satisfy EU regulations requiring European airlines to have a majority European owner. Despite this, shareholders are seeing an uplift in value, though the shares have only returned to levels seen five years ago.
Pagano notes that EasyJet, like many airlines, faced difficulties during the pandemic and has more recently contended with rising fuel costs due to geopolitical conflict in the Middle East. Nevertheless, EasyJet is described as a successful European airline with prime airport slots and expansion into the holiday package market, making it an attractive asset.
"It's taken smart U.S. asset managers to sniff out its value," Pagano writes, adding that while foreign buyers are taking advantage of these opportunities, the situation reflects a failure of the UK's financial markets to adequately recognize the worth of its companies.
Pagano suggests solutions to improve the competitiveness of the London Stock Exchange, including reducing red tape, abolishing stamp duty, improving liquidity, and introducing incentives for retail investors, rather than government intervention or mandated investment in British companies.
In a related observation, French telecoms billionaire Xavier Niel has increased his stake in Vodafone, becoming its largest investor. Niel, who previously divested a small stake due to frustration, has returned with a 16.2 percent holding, expressing support for the current chief executive's restructuring efforts and indicating a long-term investment strategy. This move has also boosted Vodafone's share price.