M&G: Bosses sell companies too cheaply and savers pay the price
Stinging attack on the boardrooms of the top investment firm M&G: bosses sell companies too cheaply, and savers pay the price
Fund giant M&G has criticized corporate board members for selling listed companies too cheaply.
In an open attack, M&G – which is saving nearly 5.5 million customers in excess of Â£ 3.5 billion – warned that UK investors are losing because Boards are too willing to accept cheap offers from foreign predators.
Michael Stiasny, head of equities at M&G, told the Mail on Sunday that directors had an “overly short-term view” of listed companies whose share prices have the potential to rise.
Stiasny said that even if predators bid 30 to 40 percent above the current stock price, in many cases investors would be better off long-term if the board declined the offer.
This is because the UK stock market is currently undervalued, so the share prices of many UK takeover targets could rise significantly.
M & G’s warning shot comes amid a spate of acquisitions and approaches for British companies – mostly from American buyers. In the past eight months alone, more than 30 publicly traded companies have been bought in deals worth nearly Â£ 30 billion.
Almost 30 more are waiting in the starting blocks – including the controversial offer of 6.3 billion pounds for the supermarket group Morrisons from a consortium of US and Canadian bidders.
Morrisons’ board of directors has accepted the offer, but several investment firms have raised concerns about the offer.
M&G said it will be vigilant about the transaction and commit to comment if it believes the interests of shareholders are at risk.
Stiasny said: ‘Boards of directors play a very important role in takeover processes. They are the first line of defense against bidders and can sometimes be too short-term.
âIf UK companies are sold too cheaply, UK savers will lose the chance to benefit from the long-term returns these companies could make.
“If you want to grow your Isa or your pension for the future, it is crucial to be able to invest long-term in quality companies – especially in an environment where inflation exceeds interest rates.”
The spate of takeover proposals followed a long period of time during which the UK stock market did less well than overseas markets.
This has created a huge gap in the valuation of UK publicly traded companies compared to their peers elsewhere, particularly in America. At the same time, the pound has fallen against other currencies, making it even cheaper for foreign bidders to plunge.
M&G claims that this makes UK companies particularly vulnerable to cheap deals.
Stiasny said, ‘Most bidders offer shareholders a premium of 30 to 40 percent on the current share price and think they are offering fair value. But they are not because the UK stock market is trading at a discount. ‘
Because such deals jeopardize investor savings, M&G believes that board members should carefully examine the long-term prospects of their companies and not be afraid of rejecting offers that do not offer long-term value. The investment firm also believes that large institutional investors have a responsibility to speak up if they feel that takeover bids are too low.
Urging the other fund managers not to be tempted by short-term price gains, Stiasny said: ‘It is important that investors take action when we see companies being sold on what we believe to be over-cheap valuations. We have to be ready to say “no”. “
M&G has spoken out against several takeover deals in recent months, including the Â£ 2.9 billion takeover of betting company William Hill and the Â£ 4 billion takeover of defense company Cobham, both by American buyers.
M&G is currently battling a Â£ 2.8 billion bid for the UDG Healthcare Group. Another US private equity firm’s offer was recommended by UDG’s board of directors, but M&G thinks it’s too low.
In 2014, M&G took the floor when US pharmaceuticals company Pfizer made a Â£ 69 billion offer for AstraZeneca, valuing each share at Â£ 55.
The offer was rejected and today AstraZeneca shares are worth more than Â£ 85, while investors have received dividends worth around Â£ 12 per share during that time.
“It’s really important to think of stocks as long-term investments,” said Stiasny.
‘Today the stock market can sometimes be viewed as a short-term money machine.
“But the AstraZeneca example shows that companies can often deliver more value if they remain independent.”