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Tate & Lyle on Monday became the latest City stalwart to head for the door. Felix Armstrong recounts the accelerating exodus from London’s stock market
As the summer holidays beckon, stalwarts of the London Stock Exchange are packing their bags ahead of a potential departure to warmer climes.
FTSE grandee Tate & Lyle became the latest big name to quit London’s public index on Monday, after its board unanimously accepted a £2.7bn takeover bid from its US rival, Ingredion.
The shock exit of this heritage brand, a constituent of the London Stock Exchange for more than half a century, has left investors and analysts fearing that London is losing its sweet tooth for top-notch stocks.
London’s stock market has been dealt a series of blows in recent years as a steady succession of big-name companies have either opted to switch their listing overseas or been snapped up by a private buyer.
‘Opportunistic’ bids shake the City
A year ago, payments company Wise announced that it would move its main share listing to the US, though it opted to keep one toe in the UK market through a dual listing.
Kristo Käärman, Wise’s chief executive, bid a fond farewell to London, insisting that the UK is home to “some of the best talent in the world in financial services,” and pledging that the fintech would “continue to invest in our presence here”.
But Wise quit anyway, and – judging by a flurry of take-private interest in recent weeks – it looks set to be followed by a host of blockbuster British firms in ditching London.
Easyjet is the most recent London-listed firm to take a seat at the departure gate, as the budget airline braces for a swoop from US private equity firm Castlelake. The firm looks set to follow Schroders out the door, after the asset manager shocked the City by accepting a £9.9bn takeover offer in February.
The airline hit out at the “highly opportunistic” nature of this potential bid, coming as the stock has taken a pummelling in recent months because of the travel chaos caused by the Iran war.
But even one of London’s most pugnacious firms cannot resist a good offer, noting that it is “clear in its duty of aiming to maximise shareholder value”. Easyjet would “consider any proposal, should one be made,” it said.
London a bargain bucket for underpriced stocks
The UK is increasingly being seen by overseas firms as a bargain bucket of underpriced businesses, often attracting takeover premiums of as much as 60 per cent, explains Neil Shah, a market strategist at Edison.
“That buyers are willing to consistently pay such premiums suggests that public market valuations do not fully reflect underlying corporate value,” he said.
The UK has seen nearly 300 bids for London-listed companies in the last six years, according to Edison’s research, and this takeover interest has been anything but deterred by the market uncertainty caused by the Iran war.
Such are the discounts on offer that Castlelake could end up snapping up Easyjet for less than the combined value of its planes – which are estimated to be worth more than its £3bn stock market listing.
The mathematics are similarly warped at Segro – the property developer which is being urged by an activist investor to spin off its hugely valuable data centre arm.
The firm’s shares – despite being up nearly four per cent this year at 708p – are trading at a 22 per cent discount to its net asset value, according to analysts at Stifel.
UK stock market is shrinking
Tate & Lyle’s £2.7bn deal offered a whopping 59 per cent premium on its share price, the firm’s board claimed on Monday.
The ingredients firm has waded into choppy waters in recent years, having dropped the rights to its iconic Tate & Lyle golden syrup brand and sugar refining arm in 2010.
The company has struggled since aiming to expand into ingredients and “mouthfeel” manufacturing, and admitted last month that its recent performance has been “disappointing”.
But the exit of an heritage brand, which has been listed in London since the 1960s and is the last surviving original member of the FT30, will nonetheless add to the gloom surrounding the UK’s stock market.
Dan Coatsworth, AJ Bell’s head of markets, said: “The UK stock market has been shrinking thanks to companies moving to pastures new and a wave of takeovers. Another one of its stalwarts is now on the chopping block.
“A successful takeover represents another loss to the London market as it struggles to attract substantial new listings to replace the names which are steadily disappearing from its ranks.”