ITV PLC (LON:ITV) quest to bring home the bacon and acquire 'Peppa Pig' maker Entertainment One Ltd (LON:ETO) might have competition.
According to the Bloomberg news agency, privately-owned buy-out specialist KKR & Co is reportedly mulling a bid for the London-listed Canadian film and distributor that would top the 236p per share cash offer ITV put on the table last week.
Entertainment One rejected that proposal on the basis it “fundamentally undervalues the company and its prospects”.
ITV countered by observing that its offer price was more than two-fifths higher than the weighted average share price of Entertainment One, prior to speculation that a bid for the company could be in the offing.
ITV has yet to confirm whether it will up its bid but broker Liberum said last week it suspected it would.
“We think ITV may not be prepared to pay the £3+ per share that we believe many E One shareholders want. A major acquisition would also put the question of ITV’s special dividend (10p per share for FY15) into question although ITV did increase the interim ordinary dividend by 26% yoy [year-on-year] suggesting it is confident about its ability to pay out a substantial amount in dividends moving forwards,” the broker said.
Canadian pension fund Canada Pension Plan acquired an 18% stake (now up to 19%) in Entertainment One at a cost of 269p per share prior to the company’s four for nine rights issue, which would imply an adjusted purchase price of 186p.
As well as winning over institutional shareholders, any bid from ITV would also have to take into account the ramifications of any change in Entertainment One’s domicile from Canada to the UK, as Entertainment One receives a number of incentives from the Canadian authorities.
“There is a strong argument for saying that ITV may only want the TV assets (including Mark Gordon, which was responsible for shows such as “Ray Donovan” and “Grey’s Anatomy”) and is not interested in the Film assets, where [sic] have seen a mixed operational performance and where there have been investor questions around the cash flow,” Liberum’s note last week observed.
“A more interesting question is whether ITV would want to retain the ‘Peppa Pig’ franchise or would look to sell it to a more children’s-orientated company,” Liberum suggested.
Shares in Entertainment One were up 7% at 255.4p in mid-morning trading while ITV’s shares were off 0.8% in a rising market.