Investors were quickly thrown into the first takeover battle of the year, with a focus on larger real estate investment trusts (Reits) this time around. The news of US private equity firm KKR’s bid of 48p per share for Assura (AGR) made headlines on 14 February. Despite the board’s unanimous rejection of the bid, questions linger about whether KKR will come back with a revised offer and if it will be deemed reasonable.
Opinions on the fairness of the bid are split among key stakeholders. Tom Furlong from CCLA, holding a 4.7% stake in Assura, is advocating for the board to engage with KKR. On the other end of the spectrum, Jon Stewart from Baillie Gifford, with a 0.94% stake, believes that the offer undervalues Assura’s net tangible asset value and fails to acknowledge the hidden value within the company’s balance sheet. Romney Fox from Abrdn, with a 2.9% stake, advises against rushing into a deal without a compelling price.
Some investors, like Rathbones with a 4.7% stake, have chosen to sell shares worth around 25mn, indicating skepticism about the deal’s probability of success. Research analysts at Green Street suggest a fair price of 49p, just below Assura’s net tangible asset value. While Shore Capital deems 48p as fair, Panmure Liberum insists that the price must be improved upon to support any deal.
The main question at hand is determining Assura’s value to KKR. The private equity firm aims to acquire the company for its infrastructure fund, leveraging its low cost of capital. Private equity buyers typically prioritize future cash flows in their valuation models and may seek to grow platforms through higher debt levels than public markets permit. However, the exit of USS from the bidding process means KKR will need to secure additional funding or seek alternative investors.
If KKR decides to walk away, Assura’s management team will face the challenge of driving the share price back to the bid level, which poses a significant hurdle. The outcome of this takeover battle remains uncertain, with stakeholders closely monitoring the developments in the coming days.