Image source: Getty Images
With many UK shares still looking cheap, the vultures have started circling. Yesterday (February 19), US investment firm Elliott Advisors made an offer to acquire the electronics retailer curries (LSE:CURIO). The share price has responded by rising 39%.
It was a company-wide cash offer at 62p per share, or £700m. He FTSE 250 The firm rejected this, saying that “significantly undervalued the company and its future prospects“.
For context, Currys' share price five years ago was 129p. The 62p per share offer therefore valued the company at less than half that.
A potential bidding war could now ensue as the Chinese e-commerce giant JD.com He is also reportedly weighing an offer.
Withering on the vine
Despite the rather unpleasant images, vultures are as necessary in the stock market as they are in nature.
They provide a way for shareholders to release some form of value from a struggling or undervalued company. And as we're seeing with Currys, it can often lead to a competitive bidding war.
Again, this is preferable to a company quietly fading on the stock market.
Competence
JD.com is often called the Amazon from China, which I find a bit ironic. After all, it is Amazon that has long put competitive pressure on the UK electronics company, as it moved from Dixons Retail to Dixons Carphone and now just Currys.
According to the BBC, a former Currys employee said customers visited stores to see if prices matched those on Amazon. If not, they would simply turn on their phones and place orders with the American e-commerce giant.
So the problem here has been a lack of pricing power due to intense online competition, which has resulted in razor-thin profit margins. Covid didn't help either.
A possible change
Despite this, Currys still generated almost £10bn in annual revenue in 2023. And last month, management said its adjusted pre-tax profit for the 2024 financial year (ending in April) would be “ahead of consensus expectations”At £105m-£115m.
Additionally, following the sale of its Greek business this year, the company will significantly improve its debt position. Combine this with a ridiculously low price-to-sales multiple of 0.08 and it's easy to see why Currys is attracting interest.
However, a risk for investors buying here would be the rejection of new offers. This would likely cause the share price to fall.
More potential acquisition targets
Given how undervalued the UK stock market is today, I expect more takeover bids, especially in the retail sector.
So which companies could be next? Well, fortunately, we have a ready-made list of potential candidates here.
That is because FTSE 100 retail giant Fraser Groupwhich is already a major shareholder in Currys, has been buying cheap shares in this space for months.
Here's a list of brands it has stacked up major bets on:
- ASOS
- boohoo
- AO World
- n.brown
- Blackberry
This group of stocks has fallen between 56% and 87% in the last five years. So I wouldn't be surprised if one of them also became an acquisition target at some point this year.
Personally, however, I wouldn't bet on any of these stocks. I'd rather break out the popcorn and watch the bidding war play out without risking my money.
