HomeServe shares leapt by 13 per cent on Wednesday on speculation that the troubled British repair and insurance group was in takeover talks with private equity firms, despite a denial from the company.
The first sign of market optimism for Homeserve since concerns surfaced last year about mis-selling of its policies came after the Daily Telegraph reported that the group had been approached by private equity buyout groups Apax, Cinven and KKR.
The company, however, denied the claims, saying: "HomeServe wishes to clarify that it has not, nor is currently, engaged in any discussions which could lead to a possible offer for the company."
Shares in HomeServe, which sells cover for, and fixes, boilers and burst pipes, tumbled after it suspended its British telesales operation last year to address concerns over how its policies were being marketed and sold.
In May the group announced that the UK regulator, the Financial Services Authority (FSA), had launched an investigation into its governance, controls and processes, which could result in a fine or compensation for customers. In mid-June the shares reached an eight-year low of 136.7 pence.
Analysts at Espirito Santo said they still thought HomeServe had an attractive business model, but the potential for reputational damage from the FSA investigation meant it was high-risk.
"Our 210 pence fair value is materially above the current volatile share price, but there remains a wide range of possible regulatory outcomes," Espirito Santo said in an analysts' note. "Hence we expect the shares to continue (to) trade below the perceived inherent value of the business, particularly now that we know management are not willing to entertain any opportunistic approach for the company."
Cinven declined to comment, while Apax and KKR were unavailable for comment.
City A.M. Reporter