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Shawbrook Rejects a Major Private Equity Bid

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March 8, 2017

When companies are faced with a lucrative private equity deal, the most common response is to take the deal quickly. Sometimes this doesn’t happen and it can leave investors and analysts puzzled. Shawbrook bank decided to go the opposite way and rejected a £825 million takeover bid – for the second time.

 

The UK lender had been approached by a consortium led by Pollen Street Capital, which currently owns nearly 40% share of the bank. The consortium offered 332.7 pence per share for Shawbrook, which would have totalled to £825 million. Steve Pateman, chief executive of Shawbrook, told the Financial Times, “It’s a good offer but it doesn’t reflect the long-term value of the company”.

 

The decision led to a slight decline in the company’s share prices in the early hours on Tuesday.

 

Bid wasn’t a surprise, answer perhaps was

 

Pollen Street Capital’s decision to buy back the shares it floated two years ago wasn’t a huge surprise. The lender, which works with small-and medium sized businesses, had been turning the tide in recent months. Although the shares had not been performing as well since the start, the lender recently announced a 14% increase in pre-tax profits for 2016.

 

The Independent speculated the lender might further benefit from the easing of capital rules by the Bank of England. This can help smaller banks compete against the larger rivals.

 

James Moore, chief business commentator for the Independent, said the decisions shows maturity from the part of private equity and institutional investors. “All the indications suggest that Pollen could get there [good premiums] on its own if things continue to run smoothly, and that its institutional investors will benefit by staying the course,” Moore wrote.

 

Shore Capital’s Gary Greenwood told the Financial Times the decision to reject the offer was “the correct”. However, he did go on to say, Shawbrook “now needs to convince the market it can deliver the growth strategy” it has been following.

 

Some analysts remain puzzled by Shawbrook’s decision to reject the offer. Marlin Bidco, a company jointly owned by Pollen Street Capital and BC Partners, made the offer with the expectation it would be accepted. On Tuesday, the vehicle said, “Marlin Bidco believes Shawbrook will benefit from being returned to private ownership, allowing it to adopt a more flexible approach in an uncertain economic environment.” The uncertain economic environment for the investors means the impact the Brexit vote might have on financial regulations.

 

Bloomberg believes the lender is now in a difficult position. By having rejected the offer, the company finds it difficult to deal with the private equity firm and to re-accept the offer. On the other hand, since it conducted due diligence, it has signalled to other interested buyers and shareholders it thinks the offer it received was a correct one.

 

It remains to be seen whether the lender will receive more offers in the near future and what it’s reaction will be in case it does.

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