Agreements are more complicated than just simple bargain hunting, executives say

By Denise Roland and Kane Wu 

LONDON -- The steep fall in the pound after last month's Brexit vote has U.K. boardrooms on guard for opportunistic foreign bidders.

But while there has been a raft of deals since Britain's referendum to leave the European Union on June 23, they have been a lot more complicated than simple bargain hunting.

Last week, Chinese conglomerate Dalian Wanda Group Co. said its U.S.-based cinema operator unit AMC Entertainment Holdings Inc. agreed to buy Europe's largest cinema chain, Britain-based Odeon & UCI Cinemas Group, for GBP500 million ($650 million). It said the lower pound was a major factor, and AMC's chief executive warned "there may even be a stampede of U.S. acquirers looking at the United Kingdom."

The same week, U.K. discount retailer Poundland Group PLC said it had agreed to a GBP600-million takeover offer from South African-based, German-listed Steinhoff International Holdings NV. A spokesman declined to comment on whether Brexit played a role, but said discussions were under way long before the vote.

And the first big cross-border deal after the referendum was one in which the money flow was going in the opposite direction: In early July, Melrose Industries PLC said it would buy U.S.-listed Nortek Inc. for $1.44 billion in cash. It had also been working on the deal before Brexit, executives said, and locked in exchange rates for a capital raising in London to fund the purchase.

The SoftBank deal underscores the complexity. ARM makes almost all of its revenue outside Britain, and its share price has soared since the vote. At Friday's close, its stock was 17% more expensive than on referendum day. That more than offset the roughly 13% drop of the pound against the yen since then. That means SoftBank probably would have paid less for ARM if it had clinched the deal before the June 23 vote.

SoftBank Chief Executive Masayoshi Son, speaking at a news conference in London after announcing the deal, said he wasn't affected by Brexit considerations and had only met ARM's chairman for the first time two weeks ago -- and after the Brexit vote.

Brexit "didn't affect my decision" on pursuing ARM, he said. He said the recent drop in the pound after Britain's referendum last month "didn't bring us any discount."

Another question that bankers and deal makers have asked themselves about potential targets in Britain: How will the new government of Prime Minister Theresa May react? She struck a cautious tone about foreign takeovers of leading U.K. companies in a speech last week just before taking office, outlining a policy that would allow the government to step in to defend strategically important sectors from foreign takeover.

In the speech, she criticized previous governments for allowing Kraft Foods Inc. to buy chocolate-maker Cadbury in 2010 and "almost" permitting Pfizer Inc. to buy AstraZeneca PLC in a blockbuster $160 billion unsolicited bid in 2014. Pfizer called off the deal after AstraZeneca spurned its repeated offers.

On Monday, British officials welcomed the SoftBank deal. The Japanese firm promised to keep ARM based in England and double its U.K.-based workforce. Officials here said it was a sign British businesses were still attractive to overseas investors despite Brexit.

"It shows we can make a success of leaving the European Union," a spokeswoman for Ms. May said Monday. Not everyone agreed. Opposition Labour lawmaker Daniel Zeichner, who represents Cambridge, where ARM is based, said Monday the deal meant Britain was "losing control of one of our most innovative and successful companies," and called on the government to secure a guarantee from SoftBank on its job-creation pledge.

Deal making in the U.K. overall has slowed this year, pressured by economic headwinds, high price tags for assets and uncertainty over the referendum on EU membership, according to bankers and lawyers. The volume of U.K.-targeted M&A deals had fallen 40% so far, compared with the same period last year, according to Dealogic.

Stu Woo contributed to this article.

Write to Denise Roland at Denise.Roland@wsj.com and Kane Wu at Kane.Wu@wsj.com

 

(END) Dow Jones Newswires

July 19, 2016 02:48 ET (06:48 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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