Major shareholders in FTSE 100 giant Intertek are urging the firm to hold its nerve as Swedish private equity firm EQT circles with a £10.3bn takeover bid including debt. Investors who account for close to £300m of the firm's value told City AM it is undervalued by the latest offer, which stands at £8.9bn or £10.3bn including debt.
Three Offers Tabled
EQT has tabled three offers in recent weeks, with its latest bid including improved terms of £58 per share. Intertek, a 140-year-old quality assurance and product testing business, commands a market value of around £7.8bn. The company's board rejected EQT's latest offer on Friday, stating it "significantly undervalues Intertek and its future prospects" and citing "significant execution risk given its conditional nature."
Spin-Off Plan Boosts Value
The testing giant recently announced it is considering spinning off its energy and infrastructure division. Top investors say EQT's offers fail to recognise the added value this will bring to shareholders. The board said the plan "would create two high-quality global businesses with a strong historical operational and financial track record" and that it was "fully focused on maximising value for shareholders."
Hugh Yarrow, portfolio manager and co-founder at Evenlode Investment, which owns 1.5 per cent of Intertek, told City AM: "Intertek has a very strong position in the global testing and inspection sector, and good cash generative growth potential. In our view Intertek's intrinsic value is higher than the level of the latest EQT bid, even before factoring in a takeover premium. Management's decision to dispose of its energy and infrastructure assets makes sense. It will realise under-recognised value within the portfolio, whilst leaving the company focused on its market-leading testing and assurance division."
Intertek's testing arm, which accounts for around three quarters of its profit, trades at a "significant discount to global peers," Yarrow added.
Premium for Control
Charles Carter, managing director and portfolio manager at Marathon Asset Management, which owns two per cent of the firm, said EQT's bid was based on the "low" market price it fell to in March. "When I look at the company I think it has some of the best assets in the industry which are not being valued in the current share price. My view is that fair value is over £60 a share and then you should be paying a premium for control above that," he said.
Analysts at Oddo BHF, a leading European asset manager, said an "acceptable" offer should be closer to £61.50 per share, but wrote that a fourth offer from EQT is unlikely. However, around 20 top investors in Intertek had reportedly been pushing for the firm to engage with the Swedish equity firm. Pinestoke Asset Management, which has a four per cent stake, wrote to the board to urge it to open dialogue with EQT, Bloomberg reported.
Intertek's share price closed at 4,910p on Friday, down 2.7 per cent in the day's trading but up more than seven per cent in the year to date. Intertek declined to comment.
