Deal with South African consolidator may hit snag after hedge fund Elliott Management acquires 17.6 per cent share.
Poundland’s near-£600m takeover by South African retail consolidator Steinhoff could be hit by an activist investor aiming to “bumpitrage” the price tag higher.US hedge fund Elliott Management, which made headlines when it cost Alliance Trust chief Katherine Garrett-Cox her job last year, has amassed a 17.6 per cent stake in the discount retailer. After gaining the approval of Poundland’s board, Steinhoff’s £597m offer now needs to be accepted by three-quarters of shareholders, excluding the prospective buyer’s own 23.6 per cent interest. Elliott’s stake is enough to “derail the bid should the US fund choose”, says the Financial Times.
Its track record would suggest the fund is seeking a profit from what the FT terms “bumpitrage” – when activist funds buy in after a deal is agreed in principle to agitate for a higher price. A similar strategy has seen the fund in the last month extract an extra £1 per share, or £9bn more, from Budweiser brewer AB InBev for UK-based rival SABMiller. Last year, it earned a bolstered bid from private equity group Lone Star for property developer Quintain. These successes now give analysts the impression Steinhoff could be forced to raise its stakes to secure Poundland.
Elliott has given no official word on its plans, says the Daily Telegraph, but City sources told the paper the fund is known to believe the 220p-per share, plus a 2p dividend, undervalues the business at a time when its profits have been hit by the tricky integration of rival 99p Stores.
Proponents of bumpitraging say private equity deals in Europe are often agreed by executive behind closed doors and “short change” investors. Elliott and others proclaim they are a “force for good”, says the FT. Things get messy if the buyer doesn’t play ball, however, as a deal falling through is rarely in investor interests – or even worse, a co-ownership compromise can give rise to costly boardroom battles.
“We are a pain for them,” one bumpitrageur “cheerily” told the Financial Times. “We can still call meetings and block payouts”