Potential bid war for Entertainment One and Eddie Stobart stuck on the hard shoulder

“There was signs of new life in the FTSE 100 ahead of the bank holiday weekend with the blue chip index jumping 0.6% to 7,175. A strong US dollar versus the pound benefited several companies which do a lot of business in the former currency including construction giant CRH and distribution group Bunzl,” says Russ Mould, Investment Director at AJ Bell.

“European markets were also in a good mood including a 0.6% advance from Germany’s DAX index.

“Next week sees an update on UK retail activity with the BRC Shop Price index and the latest GDP figure from the US."

Entertainment One

“The foreign takeovers keep on coming. Film and TV producer-to-children’s merchandise group Entertainment One has been seen as a bid target for a long time although all the chatter has focused on a media company being the logical suitor. The fact that we’ve got toy company Hasbro attempting to buy the business may initially seem somewhat leftfield yet this is a logical tie-up.

“Hasbro is the master of a milking a brand to sell all types of merchandise and so it is the perfect owner of Entertainment One which boasts an ever-increasing portfolio of popular children’s brands seen on the screen and on the shelves.

“Hasbro property Transformers existed as toys before it became a cartoon and a series of films. Entertainment One’s model has been the opposite, preferring to use TV characters to build awareness before launching merchandise.

“The big question you should now be asking is whether someone else will make a bid for Entertainment now it is in play. The shares were trading at 571p at the market open versus Hasbro’s 560p bid, which implies the market is confident about a counterbid.

“It wouldn’t be surprising to see Amazon or Netflix want to throw their hat in the ring given how Entertainment One has such a big library of content which they need in order to keep customers loyal to their streaming platforms. While both these companies already licence content from Entertainment One they only get the films and TV shows for a specific period of time.

“Perhaps more logical would be a counterbid from Disney given it is part owner of the PJ Masks brand alongside Entertainment One. The imminent launch of Disney’s new streaming service would be an ideal time to lock in a host of new characters like Peppa Pig.”

Eddie Stobart Logistics

“The distinctive livery on its lorries may have raised a nostalgic smile as you passed them on the motorway, but shareholders in Eddie Stobart Logistics might end up honking their horns in frustration after today’s news.

“The shares are suspended and CEO Alex Laffey is gone as the company fails to publish its first half results on time. The company references a need to make changes to revenue recognition, receivables and provisions in a statement which roughly translates as ‘we were at best too aggressive with our accounting’.

“No surprise then that adjusted profit is expected to be significantly lower than expected when the numbers are eventually published in early September.

“These developments, and an earlier admission that 2018 profit had been overstated by £2 million, follow the appointment of new finance chief Anoop Kangits. This at least suggests the company’s financial controls might have more rigour going forward.

“First investors must wait to see just how bad the damage is in the short-term. And then will look to see if Laffey’s replacement, head of its iForce unit Sebastian Desreumaux, and Kangits can steer Eddie Stobart back on course.

“The news will be seen as a further blow to embattled fund manager Neil Woodford, who is a major shareholder in the company.”

These articles are for information purposes only and are not a personal recommendation or advice.

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.