Merger mania grips the City
A SUMMER flurry of corporate activity gathered pace yesterday as SSL, the maker of Durex condoms, agreed a £2.5bn takeover offer from Reckitt Benckiser, and the owners of United Biscuits put the firm up for sale.
Shares in SSL soared 33.5 per cent to £11.77 after the board recommended the FTSE 100 household goods company’s long-awaited approach. Reckitt, whose brands include Clearasil and Gaviscon, said the “step change” acquisition would boost its health and personal care sales by more than a third to £2.8bn.
Reckitt was last night bracing itself for the possibility of a counter-bid from a trade buyer such as GlaxoSmithKline, Merck or Bayer, or a buyout player. Brian McKay, a banker at corporate finance house Houlihan Lokey, said: “Every major private equity firm in the UK will have looked at this.” A counter-bid is on the cards “simply because there’s a dearth of large deals out there and there’s a surplus of private equity cash,” he said.
Separately, it emerged Blackstone and PAI Partners are sounding out investment banks to advise on an auction of United Biscuits. The manufacturer of Penguin chocolate bars and Hula Hoops crisps could be worth £2bn. Its snacks and biscuits divisions may be sold individually.
Other stocks bounced on hopes of further dealmaking. Hedge fund Man Group climbed three per cent to 215.2p as traders again speculated it was on Bank of New York Mellon’s shopping list. Tui Travel added 3.2 per cent to 229p after an analyst note suggested its German parent could buy out the 45 per cent it does not own.
Earlier in the week, industrial components group Tomkins said it was in talks with a consortium of Canadian investors over a £2.9bn deal, while International Power, the energy generation firm, said it had resumed on-off talks with France’s GDF Suez. The talks could lead to GDF Suez taking a majority stake in the operator.
Deal advisers warned the macroeconomic backdrop remained fragile and said sterling’s weakness relative to the dollar did not necessarily make British companies more attractive, because earnings in pounds were marked down as well as valuations.
However, analysts said FTSE valuations had yet to catch up with corporates’ improved balance sheets.
Deloitte’s Paul Zimmerman said: “Companies are able to demonstrate how they fared in an actual recession and that can make them more attractive assets. You’ve seen how they performed in the good times and bad.”