Private equity firm to increase offer for UDG Healthcare to £2.7bn

Move by Clayton, Dubilier & Rice, which wants to take over Morrisons, follows shareholder opposition

First published on Fri 25 Jun 2021 06.15 EDT

The US investor Clayton, Dubilier & Rice is to increase its offer for Dublin-based UDG Healthcare to £2.7bn, in the latest swoop by a private equity firm on a London-listed company.

CD&R, which is also seeking to take over the UK supermarket chain Morrisons, is “considering a new and final offer” valuing the business at £10.80 a share, UDG said in a statement to the stock market.

Private equity funds have been on the hunt for UK-listed bargains since the start of the pandemic, when valuations plummeted. Foreign investors announced 113 deals for takeovers or stakes in UK companies up to mid-June, according to data company Dealogic. Those deals had a combined value of £23.3bn, more by that point than in any year since 2007, just before the financial crisis.

UDG was forced to postpone an extraordinary general meeting to vote on the original deal, which had been scheduled for Friday, after CD&R’s initial £10.23-a-share offer in May resulted in shareholder opposition.

The board of UDG had recommended the initial offer but Allianz Global Investors, its largest shareholder, came out against the deal, saying the bid was “opportunistic and significantly undervalues UDG and its prospects”.

Another large investor, City of London-based M&G, also opposed the offer. Rory Alexander, a fund manager at M&G, on Friday said the group was “pleased” that CD&R had upped its bid, “a potential offer of £10.80 would still fall short of our expectations on behalf of our customers”, the Financial Times reported.

As a result, UDG postponed the extraordinary general meeting as the two sides resumed negotiations over a sweetened deal.

Weeks after CD&R made its first offer, Elliott Investment Management, a high-profile activist investor that has forced change at major corporations including the US telecoms giant AT&T, took a 3.1% stake in UDG.

UDG said it has not received any rival buyout proposals. Shares rose 1% on Friday to £10.57.

Last Saturday, Morrisons, the country’s fourth-largest grocer and employer of 110,000 people, rejected an unsolicited £5.5bn takeover offer from CD&R.

Morrisons’ share price has climbed from 178p prior to the offer being made to 233p on Friday, indicating that investors are hoping for an improved offer – or rival bid – although that is only just above CD&R’s initial 230p-a-share offer.

Labour has urged the government to step in to ensure a potential private equity takeover of the supermarket chain would not affect Britain’s food security, damage farming or lead to job losses.

The barrage of takeovers has prompted broader concerns that UK companies in particular may be targets because Brexit uncertainty weighed on valuations.

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