Shawbrook receives 330p buyout approach from Pollen Street, BC
Shawbrook Group revealed three minutes before the close on Friday that its private equity backer Pollen Street and BC Partners had teamed up to propose taking the challenger bank private less than two year after bringing it to market.
Under the proposed terms, Shawbrook said its shareholders would receive 330p per ordinary share in cash plus any final dividend in respect of calendar 2016 as long as it is below 3p per share.
The takeover values the challenger bank at a market capitalisation of roughly £825m.
The shares closed on Friday at 304.2p, having risen sharply late in the day.
Shawbrook said discussions with the pair "are ongoing".
Pollen Street still owns 38.9% of Shawbrook with partner Lindsey McMurray sitting on the bank's board, having listed Shawbrook in April 2015 in an initial public offering at 290p.
The bank said McMurray has not been, and will not be, involved in the board's consideration of the proposal made by the consortium.
Pollen St and BC have until 1700 GMT on 31 March to confirm their firm intention to make an offer under London's 'put up or shut up' rules.
On Monday, broker Shore Capital said the news of a possible takeover did not come as a surprise, given the depressed valuation of the group’s shares - but argued that the offer price benefited no shareholder apart from Pollen.
"That it has been received from a consortium including the group’s largest shareholder suggests frustration that the market is not willing to reflect fair value in the stock or concerns that the management team is no able to execute on a strategy that will deliver a materially higher share price," ShoreCap said.
While the offer prices represents a 23% premium to the previous day's close and a 14% premium to the April 2015 flotation price, it was well below analyst Gary Greenwood's current fair value estimate for the group of 400p per share and therefore "does not represent good value for shareholders, other than Pollen Street, and should be rejected by the board".
"However, given the ability of Pollen Street to block any rival offer, we think the likelihood of this approach sparking a bidding war or an approach from a ‘white knight’ is low. The Board will also need to take this into consideration when deciding whether to recommend accepting or rejecting the offer."
Analyst James Hamilton at Numis said he believes Shawbrook is worth 551p -- a 55% premium to the offer -- per share today, if it hits its current targets, with Pollen Street buying the challenger for 11 times forward earnings having floated it at 21 times.
"We believe this deal demonstrates how fearful the market has become about the specialist lenders, valuing them at a level where PE is a buyer."
He said the market seems to be pricing in a recession that is worse than the credit crisis.
"We can't say we blame Pollen Street. The market is still convinced that Brexit will drive an imminent recession and consequently all of the banks -- especially the new, unproven through a cycle ones like Shawbrook -- are valued at a substantial discount.
"If the growth, returns and profitability of Shawbrook was manifesting itself in any other sector the PE multiple ascribed by the market could be three times the bid valuation of Shawbrook."