M&G: Bosses are selling off firms too cheap, and savers pay price

Fund giant M&G has slammed company board directors for selling off stock market-listed businesses too cheaply. 

In an outspoken attack, M&G – which looks after more than £3.5billion of savings for almost 5.5million customers – warned that British investors are losing out because boards are too ready to accept low-priced offers from overseas predators. 

Michael Stiasny, head of equities at M&G, told The Mail on Sunday that directors were taking ‘too much of a short-term view’ of listed companies whose share prices have the potential to soar. 

Stiasny said that even if predators offer 30 to 40 per cent above the current share price, in many cases investors would be better served in the long run if the company board rejected the offer. 

He explained that this is because the UK stock market is currently undervalued, so share prices in many British takeover targets have the potential to rise significantly. 

M&G’s warning shot comes amid a flurry of takeover deals and approaches for UK companies – mostly from American buyers. In the past eight months alone, more than 30 listed firms have been snapped up in transactions worth almost £30billion. 

Nearly 30 more are waiting in the wings – including the controversial £6.3billion offer for supermarket group Morrisons from a consortium of US and Canadian bidders. 

The Morrisons board has accepted the offer but several investment firms have expressed concerns about the bid. 

M&G said it is keeping a watchful eye on the deal and has pledged to speak out if it believes that shareholders’ interests are at risk. 

Stiasny said: ‘Boards play a very important role in takeover processes. They are the first line of defence against bidders and they can sometimes take too much of a short-term view. 

‘When UK companies are sold off too cheaply, UK savers lose the opportunity to benefit from the long-term returns that these businesses could generate.

‘If you want to grow your Isa or pension for the future, being able to invest in good quality companies over the long term is vitally important – particularly in an environment where inflation is outstripping interest rates.’ 

The spate of takeover proposals follows a prolonged period during which the UK stock market has performed less well than overseas markets. 

This has created a huge gap between the way that British quoted companies are valued compared with 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 swoop. 

M&G maintains that this makes UK firms especially vulnerable to low-ball bids. 

Stiasny said: ‘Most bidders offer shareholders a 30 to 40 per cent premium to the prevailing share price and they think that they are offering fair value. But they aren’t because the UK stock market is trading at a discount.’ 

With investors’ savings at risk from such deals, M&G says boards should take a long, hard look at the long-term prospects of their businesses and should not be afraid to reject offers that do not offer long-term value. The investment firm also believes that big institutional investors have a responsibility to speak out when they think takeover bids are too low. 

Calling on fellow fund managers to resist being seduced by short-term gains, Stiasny said: ‘It is important that investors step up when we see companies being sold at what we think are too cheap valuations. We need to be willing to say ‘no’.’

M&G has spoken out against several takeover deals in recent months, including the £2.9billion acquisition of betting group William Hill and the £4billion takeover of defence group Cobham, both by American buyers. 

M&G is currently fighting a £2.8billion bid for UDG Healthcare Group. The offer, from another US private equity firm, has been recommended by the UDG board but M&G believes it is too low. 

In 2014, M&G spoke out when US pharmaceutical group Pfizer made a £69billion bid for AstraZeneca, valuing each share at £55. 

The offer was rejected and today AstraZeneca shares are worth more than £85, while investors have received dividends worth about £12 a share during that time. 

‘It’s really important to look at equities as long-term investments,’ Stiasny said. 

‘Today, the equity market can sometimes be seen as a short-term cash machine. 

‘But the AstraZeneca example shows that companies can often deliver more value if they remain independent.’