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Barbarians Through The Gate

8 July 2021

For months I have been expressing the view that until the UK equity market is sensibly valued our companies will continue to be picked off by US predators and private equity groups. Hardly a week goes by without another London listed company being pounced upon and the frequency is, if anything, increasing.

Our investing institutions may not recognise the wonderful value that our stock market offers in comparison with the other majors but someone does and you don’t need three guesses to know from whence they hail. KKR is one of the US’s best known investment firms managing hedge funds, private equity funds and multiple alternative assets. They have been around a long time and know what they are about. This week KKR announced they are setting up a dedicated team in the UK because they feel “There is more value at high level in the UK than there is in other markets”.

In short, they are telling us the UK market is too cheap and they intend taking full advantage of it. The Barbarians are no longer at the gate – they are through it and setting up camp here.

William Morrison Update

Further to my article on 21st June I’m afraid the WM board has turned wimp. Having promptly rejected the CDR bid of 230p as too low, a matter recognised by the world and his wife, they have rolled over to the next visitor to their door. The Fortress Investment Group has offered 254p, admittedly a handsome improvement on CDR’s miserable bid but still rather short of knockout territory. The market seems think so too with the shares currently trading around 266p although my view is that 275p should be a reasonable target.

Despite the WM board’s weak-kneed acceptance of the Fortress terms I suspect this isn’t over yet. Holders should ignore all the noise for the moment and let matters run their course. With a fair wind and a bit of good fortune the WM board may yet have to change their recommendation.


GSK is the latest of our big companies to enjoy the interest of the private equity brigade. Already looking to split the company in two next year, CEO Emma Walmsley has spent recent weeks rebuffing new 5% shareholder, Elliott Management, aggressive suggestions.

Walmsley planned more than a year ago to hive off the consumer healthcare business into a separately quoted company and thoughts re the value of this business have pointed towards £40bn or so. This business has strong cashflow and I can see why private equity would be interested in this – a typical gear it up, get your cash out and run it lean target. Elliott, as things stand, would have a 5% starting stake in this following a hive-off.

It would also have a 5% stake in the remaining pharma and vaccines business. This might not be private equity fodder but it would, I am sure, be of interest to US rivals, many of which, following the split, would be much bigger than GSK and have more than sufficient firepower to acquire them. It seems to me that Elliott’s plan is twofold – one to end up with the consumer healthcare business, probably as part of a private equity consortium and secondly, to open the door to a potential buyer for pharma/vaccines. Elliott is not known for giving up on its targets and is likely to badger away at GSK until it gets most of what it wants.

Glaxo has been a better market since Elliott first announced its stake. It has been a lacklustre performer for a number of years but it feels to me as if shareholder patience is beginning to be rewarded. Hang on in there is my view.

Russell Dobbs FCSI
Chartered Wealth Manager