29 February, 2024 | 2:53 pm

Following on from our statement on 20 February 2024 regarding the possible takeover of Currys, we note that another of our portfolio holdings, Direct Line has this week received a takeover offer. The company is held across the strategies managed by the Redwheel Value and Income team, including the Temple Bar Investment Trust.

The Board of Direct Line has confirmed that on 19 January 2024 it received a highly conditional, non-binding indicative proposal from Ageas to acquire the entire issued and to be issued share capital of Direct Line Group (the “Proposal”). The terms of the Proposal comprised 100 pence in cash and one new Ageas share for every 25.24047 Direct Line Group shares. As at closing on 27 February 2024, the Proposal implies a value of 233 pence per Direct Line Group share.

We are in agreement with The Board that the Proposal is ‘considered to be uncertain, unattractive, and that it significantly undervalued Direct Line Group and its future prospects while also being highly opportunistic in nature’. We thus support the Board’s decision to reject the Proposal, noting Direct Line’s significant market share in the UK and improving sector fundamentals which position the company for future growth.

This event serves as further evidence of the issue we recently highlighted following the recent Currys takeover bid. The largest market participants in the UK are increasingly diverting their investments away from UK equities towards other markets, particularly the US. This is despite UK equities being valued at close to all-time lows, suggesting the potential for attractive returns.

Significant undervaluation in certain pockets of the UK equity market has resulted in foreign corporate buyers seeking to capitalise on these depressed prices. Unless this trend is reversed, we expect to see foreign ownership continue to grow and a local ownership continue to fall. 

We firmly believe that a robust equity market is essential for a healthy and functional economy, and we urge the relevant UK authorities to take proactive measures to encourage domestic investors to reallocate funds towards UK equities, thus safeguarding a vital component of the country’s financial infrastructure.

Past performance is not a guide to the future. The price of investments and the income from them may fall as well as rise and investors may not get back the full amount invested. Forecasts and estimates are based upon subjective assumptions about circumstances and events that may not yet have taken place and may never do so.

No investment strategy or risk management technique can guarantee returns or eliminate risks in any market environment. Nothing in this document should be construed as advice and is therefore not a recommendation to buy or sell shares. Information contained in this document should not be viewed as indicative of future results. The value of investments can go down as well as up.

The statements and opinions expressed in this article are those of the author as of the date of publication, and do not necessarily represent the view of RWC Partners Limited or of its group companies (together Redwheel). This article is issued by RWC Asset Management LLP, in its capacity as the appointed portfolio manager to the Temple Bar Investment Trust Plc. Redwheel, is authorised and regulated by the UK Financial Conduct Authority and the US Securities and Exchange Commission.

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