On 29 June private equity firm Clayton, Dubilier & Rice increased its offer for pharmaceutical firm UDG Healthcare (UDG) by 5.5% to £10.80, valuing the company at £2.93 billion, including debts.

The new higher price represents a premium of 28.3% to the pre-bid closing price on 11 May 2021 which is below the average 36% premia offered across almost 50 takeovers since last October according to data collected by Russ Mould, investment director at AJ Bell.

The private equity firm had already obtained approval from UDG’s board at a lower price, but its largest shareholder Allianz Global Investors, together with other top shareholders, criticised the board for accepting a price they considered to undervalue the company.

Institutional shareholders are increasingly pushing back against private equity takeovers, asking for more in the belief that private equity buyers are picking up UK companies on the cheap.

In all-cash offers the selling shareholders are forgoing the upside of future value creation and therefore need to be compensated appropriately.

Institutional shareholders have a responsibility to their customers to ensure they receive a price as close to fair value as possible.

It’s hard to believe that UDG’s leading shareholders had such a stingy 5.5% increase in mind when they were in discussions with the private equity group, but unless a rival bid materialises the latest deal looks like it will be enough to secure the prize.

Shares magazine is owned by AJ Bell. Daniel Coatsworth who edited this article owns shares in AJ Bell.

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