By Geoffrey Smith
Investing.com -- It's beginning to look like a pattern.
Another U.K. company has been snapped up by an overseas buyer. Last week it was pub chain Greene King (LON:GNK), bought by Hong Kong tycoon Li Ka-Shing for $5.5 billion including debt. This week, it’s Entertainment One (LON:ETO), the studio that owns the rights to children’s TV character Peppa Pig.
Hasbro (NASDAQ:HAS) has offered to pay $4 billion for eOne, a 28% premium to Thursday’s close in London, and 20% above the shares’ all-time high in May. The shares have risen by even more – just over 30% - in early trading on Friday, suggesting that some feel a competing bid could be around the corner.
In contrast to Greene King (LON:GNK), Entertainment One has always traded like a growth stock with global ambitions, even if its most recent annual results were overshadowed by problems transitioning from the DVD age to the streaming one. Peppa Pig has proven particularly popular in China, where two themed attractions are set to open by year-end.
Other franchises such as PJ Masks are also globally marketable and should be able to command solid licensing fees in a world where streaming giants with deep pockets such as Netflix (NASDAQ:NFLX), Disney and Apple are throwing ever-higher sums at original content.
What eOne and Greene King (LON:GNK) have in common is that they are both relatively small and digestible, like chipmaker ARM, snapped up on the cheap by Softbank during the initial post-Brexit shock to U.K. equities. They’re also cheapened by the fact that they belong to an asset class - U.K. mid-caps – that are the most unloved in the investing world due to the uncertainties over Brexit: Bank of America’s latest fund manager survey showed a net balance of 30% active managers underweight on U.K. equities. This at a time when the pound is close to 34-year lows against the dollar.
The pound – also an asset underweighted by global money managers – ticked up sharply on short-covering in the last two days as 10 Downing Street has desperately tried to put a positive spin on Prime Minister Boris Johnson’s visits to France and Germany to seek a renegotiated Brexit deal. The fact that much of that spin relied on a mistranslation of Chancellor Angela Merkel’s words by government-friendly U.K. media says a lot about the actual progress achieved.
However, the sharpness of the bounce suggests that U.K. assets have now priced in so much bad news that the risks from here on may be more evenly balanced. The FTSE 250 and FTSE All-Share led European gains on Friday, rising 1.1% and 0.8% respectively. The more globally-focused FTSE 100 was up 0.7% while the STOXX 600 was up 0.6% in line with the German DAX.