UK takeover targets hold out for higher bids amid valuation gap

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UK takeover targets and bids

Highlights

Segro and easyJet boards have rejected takeover offers—despite sizeable premiums—insisting these bids undervalue their businesses amid persistent market discounts.
Public bids from Castlelake for easyJet and Prologis for Segro raise pressure, with Prologis' all-stock offer valuing Segro at net asset value, over 20 percent above pre-approach price.
FTSE 100 has risen about 20 percent in the past year, fuelled partly by takeover activity, signalling that the prolonged UK valuation discount may be diminishing.

Boards test bid discipline

As reported by Financial Times, boards at companies such as Segro and easyJet are standing by rejections of takeover offers that came at sizeable premiums to their pre-bid share prices, arguing the proposals still undervalue their businesses.

That position challenges a conventional takeover yardstick under which bids below a 30 per cent premium are often viewed sceptically, while richer offers deserve closer scrutiny. The debate becomes more complicated when depressed market valuations persist for years rather than reflecting a brief dislocation.

In many deals, an initial rejection is part of a negotiation process that ends with a higher offer. White & Case says the average number of price increases between first offer and final acceptance over the past 12 months runs at roughly four to five.

But some bidders are not extending that process privately. Castlelake, which has approached easyJet, and Prologis, which has targeted Segro, have made their interest public, increasing pressure on boards and shareholders to justify holding out for more.

Asset values and UK market sentiment

Castlelake's offer for easyJet is pitched at a level shareholders have not seen for four years. Prologis' all-stock proposal values Segro at about net asset value, more than 20 per cent above where the shares traded before the approach became public.

Even so, Segro's supporters argue that neither the market price nor accounting net asset value fully captures the worth of its development pipeline, including data centre projects. Peel Hunt estimates that the group's net asset value could rise by about half as those projects are rolled out, while any additional synergies available to Prologis, including lower head office costs, indicate room for a higher bid.

Rejecting offers is not without danger, because boards that turn bidders away and then fail to deliver comparable value can face a backlash. Still, the broader UK market backdrop is shifting, with the FTSE 100 up about a fifth over the past year, partly helped by sustained takeover interest, reinforcing the view that the long-standing discount on UK companies may be starting to fade.

In our earlier article on Prologis’ all-stock bid for SEGRO, we explained how the £12.6bn approach was made public after SEGRO’s board unanimously rejected it, putting the spotlight on execution risk and a potentially lengthy UK takeover timetable running into 2026. We also noted that, alongside the deal uncertainty, Prologis’ shares were facing bearish technical signals in the near term, making the market’s next moves sensitive to both negotiation developments and broader sentiment.

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