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The most prominent actor in the FTSE 250 yesterday (November 25) was itv (LSE: ITV). The stock price was up 8.65% on the day, continuing what has been a volatile few weeks for the stock. I took a deeper look at the news that triggered the move to see if this could be the start of something bigger.
Key catalyst for measurement
The jump came after media reports over the weekend that the company has been attracting interest in a potential acquisition. According to anonymous sources, initial talks have taken place between ITV executives and private equity giants over a potential deal.
Part of the reason this might not be fantastic talk is due to the share price performance in recent years. The stock is down 45% in the last three years. The latest annual results for 2023 showed a 41% drop in earnings per share. Although the first half of 2024 results were better, revenue was down 13% compared to the same period last year.
Another reason a takeover could happen is the perceived benefit and value that could be gained by spinning off ITV Studios. This area of the business is considered the bright spark. The production element is expected to generate record profits in 2024. This is in contrast to the more traditional advertising division, which has seen a drop in demand. If the company is bought, any buyer could make a profit by selling the profitable Studios arm and then focus on transforming the rest of the company.
taking a step back
If discussions become serious and a potential offer is presented, I would expect it to be at a premium to the current share price. Normally, with public procurement, this is what happens. In that case (or before it happens), speculative buyers could step in and drive up the stock price.
So while the party might be starting from that angle, that doesn't mean it's going to invest. For starters, no agreement may be reached. In that case, I have to think: do I want to own the shares even if management is forced to try to solve the problems on its own? Or you could strike a deal, which would mean you could make some quick money, but that's it. After all, the stock will likely be taken off the market when it's all over.
If you were a specialist investor focusing on mergers and acquisitions, this could be an opportunity to take advantage of. However, I prefer to buy stocks with a long-term approach. On that basis, I don't care if a short-term rally is triggered from here. Of course, you could be missing out on a good purchase. But buying and selling based on media rumors is not something I do these days.
