The target says the $1.3 billion offer is too low, while its suitor gives no indication on whether it plans a sweetener.
By Laura Board
Shares
in Canada’s Entertainment One Ltd. rose on Wednesday after it announced it had
received, and rejected, a £1.03 billion ($1.3 billion) bid from the U.K.’s
leading commercial terrestrial TV broadcaster, ITV plc.
The
London-listed, Toronto-based target is a media rights and content producer,
whose assets include the children’s Peppa Pig franchise. It said ITV had made a
“preliminary proposal” worth 236 pence per share.
“The
board of eOne has reviewed the proposal and has unanimously rejected it on the
basis that it fundamentally undervalues the Company and its prospects,” it
said.
Entertainment
One shares were recently up 6.7% at 232 pence.
ITV
itself gave no indication of whether it will lift its bid.
“We
suspect it will not although there is some rationale for a combination of the
assets,” noted Liberum analysts, who have a buy recommendation on the
stock.
An
ITV spokesman declined to comment on its next move.
In a
statement, ITV said its bid represented a premium of 41% to Entertainment One’s
average share price in the month to July 11, when talk of a bid resurfaced, and
is 19.3% more than Tuesday’s closing price.
“The
proposal is subject to normal diligence and any transaction would require board
approval and customary other approvals,” it said. “ITV also reserves
the right to withdraw, vary or amend the proposal, in whole or in part, at any
time. There can be no certainty that any transaction will ultimately take
place, nor as to the terms on or structure by which any such transaction might
be constituted.”
Speculation
about an ITV bid for Entertainment One had previously arisen in April.
London-based
ITV has been snapping up content producers, including The Voice’ producer Talpa
Media BV, which it bought for an initial £355 million in May 2015.
ITV
CEO Adam Crozier is seeking to diversify revenue away from advertising, where
growth has dwindled.
“ITV
has a clear strategy that, over recent years, has created significant value for
shareholders. A key part of that strategy is continuing to build a scaled
international content and global distribution business, with a focus on U.S.
scripted content,” the company said. “ITV believes that the proposed
combination with eOne has strong strategic rationale and would further
accelerate ITV’s rebalancing of the business.”
ITV,
which is 9.9% owned by Liberty Media plc, had a market value of about £8
billion as of mid-morning in London, when its shares were up marginally at 199
pence. Liberum has a target price of 375 pence on the stock.
Entertainment
One has also been an active acquirer as it aims to double its size by 2020. In
March bought a 65% stake in Renegade Entertainment LLC , the maker of reality
TV shows including “Fit to Fat,” for $23 million. In September it
held a rights issue to finance the acquisition of 70% of Astley Baker Davies
Ltd., the co-owner of rights to Peppa Pig, for £140 million. The deal came two
weeks after Canada Pension Plan Investment Board bought Entertainment One
shares held by Marwyn Value Investors LP for £142.4 million to become
Entertainment One’s leading shareholder, with a 17.9% stake.
Entertainment
One’s website says Canada Pension Plan currently owns 19.8% of the stock.
Entertainment
One had revenue of £803 million for the fiscal year ended March, a rise of 2%.
Reported pretax profit was up 9% at £48 million.