Big M&A is back! The last week has given us two multi-billion pound deals, one friendly and one which began as an informal approach but has since turned hostile.  Both resulted in huge share price moves. The targets’ shares jumped on the offer of healthy premiums. The reaction in the acquirers’, however, suggests indecision about the news.

Turnaround experts Melrose Industries (£4.5bn market cap, ) offered shareholders in struggling engineer GKN (£7.6bn, UK 100 ) a 30% premium (1.49 new Melrose shares + 81p for each GKN share tendered), with the option to either cash out in the market at a share price now 30% higher price – incidentally, this is higher than the latest bid, suggesting the market expects Melrose to come back with a better offer – or accept the offer of some cash and participation in the new merged entity.

After the first offer was rebuffed (par for the course; who accepts first offer?; if they’re that interested they’ll be back), Melrose turned hostile, pointing out how badly GKN was doing both operationally (Aerospace problems, pension deficit) and in terms of relative share price performance. It even published a pitch-book for GKN shareholders to convince them of the deal’s merits, harking back to the good old days of hostile takeovers.

For the moment, GKN shares remain around all-time highs. A look at our historical data suggests 30% is the average control premium offered, however, we have seen figures as high as 43% in recent deals involving big UK companies. The Melrose/GKN story may have legs, depending on how hard the former resists and how much the latter is willing to pay for the privilege of taking the risk to try and create more value.

No such hostility in the announcement from Informa (£5.8bn, UK 100 ) and UBM (£3.5bn, ), two events/conference companies, agreeing to merge into a leading B2B information Services group. The deal structure and situation was very similar, UBM shareholders being offered 1 new share and 163p cash – equating to a similar 30% premium – giving them the option of cashing out in the market or participating in the deal.

In terms of cashing out, however, UBM shares hadn’t jumped the whole 30%. They had risen only 20%. Why? Market uncertainty about whether the deal would be approved by shareholders, approved by competition regulators, and how long it might take to complete. After all, there is a time value of money, and the longer a deal takes to complete the more risk there is of it being scuppered. Some question the validity of the deal, Informa perhaps paying too much for a transaction offering very limited synergies to boost margins.

Whilst the share price jump for both prey was very normal (GKN +29%, UBM +20%) the predator reactions were conflicting. Informa shares fell 5%, which is normal for a company about to spend a whole load of cash/raise debt/sell shares to buy another firm, and no guarantee that integration will go smoothly. However, it was perhaps a little more than we’d usually see (2 or 3% might be more normal) suggesting shareholders not quite embracing the deal. Conversely, Melrose shares rallied 5.8% suggesting investors well on-board with the idea of cleaning up GKN.

What might be the next UK Index deal on the horizon, from which you could profit? For that you’ll need access to our award-winning research service to benefit from our Merger and Takeover watch which highlights potential deals and those in play. You’ll  also benefit from a host of other publications helping you remain reliably informed about

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Have a nice weekend

Mike van Dulken, Head of Research, 19 Jan 2018