The Takeover Tussle
We add Britvic shares to the portfolio with the Carlsberg saga ongoing
On Friday, we bought Britvic (LON:BVIC) stock for our Global Asset Portfolio. Even though we’ll be dropping out June Portfolio Review in a couple of weeks, we wanted to flag up our reasonings for buying this as more of a tactical play, based on the market reaction in trading on Friday to news.
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Takeover targets
Back in May, we flagged up why we’re watching UK equities closely at the moment.
We feel that the UK equity markets have been overlooked for some time and are trading at cheap valuations. Evidence of this can be seen from the amount of companies being bought out that are listed on FTSE markets.
As a snippet from a recent FT article highlights:“The value of bids for London-listed companies this year has hit the highest level since 2018, as beaten-up share prices help entice suitors and hand the UK a role in the burgeoning recovery in global dealmaking.
London-listed groups have received more than $78bn worth of bids this year, with the majority coming from overseas buyers, according to data from Dealogic.”
While it would be frustrating to buy a stock that’s undervalued and then have it delisted due to a buyout, it’s not the end of the world. Although we aren’t investing for M&A action, any deal would represent a short-term quick buck based on a likely premium paid on the current share price.
As something to mull over for those who want to dig deeper into UK domestic companies (that mostly sit in the FTSE 250), consider this: The current price-to-earnings ratio of the FTSE 250 is 15.47, the lowest level since the start of the pandemic.
This ties in nicely with picking up the story of Britvic and Carlsberg.
The players in the game
Britvic is a leading international soft drinks company based in the UK and listed on the FTSE 250.
It produces and markets a wide range of beverages, including carbonated drinks, juices, flavoured waters, and mixers. Britvic owns a portfolio of iconic brands such as Robinsons, J2O, Tango, and Fruit Shoot, and it also holds the license to produce and distribute global brands like Pepsi, 7UP, and Mountain Dew in certain regions.
With operations spanning across Europe, the Americas, and other international markets, Britvic has a diversified global presence. The share price performance over the past year is shown below:
Carlsberg is a renowned global brewing company headquartered in Copenhagen, Denmark. Founded in 1847 by J.C. Jacobsen, Carlsberg has grown into one of the world's leading breweries, producing a wide range of beer and beverage products. It currently has a market cap of circa £14bn, which contrasts to Britvic at £2.70bn.
Carlsberg operates numerous breweries worldwide and distributes its products in over 150 markets, ensuring a broad international presence in the same way as Britvic.
Sniffing for a deal
Carlsberg has made two takeover bids for Britvic over the past month. These were both unsolicited, but highlights its strategic interest in expanding its presence in the soft drinks market.
The initial bid, valued at £800 million, equated to 1,200p per share in an all cash offer.
Despite the attractive proposition, Britvic initially rejected the offer, believing it undervalued the company’s growth potential and market position. In response, Carlsberg tabled a second, higher bid of £850 million, which equated to 1,250p per share. Even though this was around a 20% premium to the share price close on Thursday, the offer was turned down on Friday.
The note that Britvic put out on Friday is below: