Canada’s Entertainment One (ETO.L), the owner of children’s TV character Peppa Pig, has rejected a 1 billion-pound (US$1.3 billion) takeover offer from British broadcaster ITV (ITV.L), saying it undervalued the production and distribution company.
Starting life as a Canadian record and tape retailer, eOne now has a place on the London Stock Exchange, boasting a library of rights including more than 40,000 film and television titles, 4,500 hours of television programing and 45,000 music tracks.
The group, which acquired the European licensing rights for the DreamWorks Studios film of Roald Dahl‘s children’s book “The BFG”, says its rights alone were independently valued at over US$1 billion last year.
“The board of eOne has reviewed the proposal and has unanimously rejected it on the basis that it fundamentally undervalues the company and its prospects,” it said.
ITV, Britain’s biggest free-to-air commercial broadcaster, has been buying up production companies, particularly in the drama and reality TV genres, to reduce its reliance on U.K. TV advertising sales.
Acquiring Toronto-based eOne would bolster its activities in television production and family entertainment as well as giving it an international film distribution business.
“A key part of (our) strategy is continuing to build a scaled international content and global distribution business, with a focus on U.S. scripted content,” it said on Wednesday.
“ITV believes that the proposed combination with eOne has a strong strategic rationale and would further accelerate ITV’s rebalancing of the business.”
Wednesday’s offer of 236 pence a share in cash is a 19 percent premium to eOne’s closing share price on Tuesday. Measured over six months to July 11, however, the premium to eOne’s weighted share price is 47 percent, ITV said.
The shares were trading up 9.2 percent at 237.6 pence by 1520 GMT, with ITV’s shares 1.1 percent higher at 201 pence.
eOne has come under pressure from U.S. activist shareholder Livermore Partners for the rapid pace of its deal-making and what it said was a lack of focus on cash flow.
The company bought a controlling stake in the U.K. production company behind the preschool franchise Peppa Pig in 2015, and in the same year bought 51 percent of The Mark Gordon Company, the producer of TV shows including “Grey’s Anatomy” and movies including “Steve Jobs” and “Saving Private Ryan”.
David Neuhauser, managing director at Livermore Partners, told Reuters that a tie up with ITV would be a positive, but that he valued the firm at close to 300 pence a share.
“I don’t have faith in this management and this board,” he said. “It would take a long period of time for them to restore credibility on their own, and therefore if we can get the proper valuation today that closes the gap, that’s something we would have interest in. The price proposed today is still too low.”
Any deal could be helped along by the close management ties between the two firms, with Entertainment One’s chairman Allan Leighton a long-standing admirer of ITV CEO Adam Crozier, having appointed him to run Britain’s Royal Mail Group in 2003.
Analysts at Investec said last month that with more than 80 percent of sales outside Britain, eOne looked relatively attractive given concerns over the value of sterling and British economic risks after the vote to leave the European Union.
Citi said a deal made strategic sense for ITV as it decreases reliance on advertising and increases scale in content production, although film would be a new area and cash generation has been lower than the broadcast business.
Update: Canada Pension Plan Investment Board bought a minority stake in Entertainment One for 142.4 million pounds ($290 million) last year. The seller in the deal was British private equity firm Marwyn Investment Management.
CPPIB remains the company’s largest shareholder.
By Paul Sandle
(Additional reporting by John Tilak in Toronto; Editing by Greg Mahlich and Keith Weir)
(This story has been edited by Kirk Falconer, editor of PE Hub Canada)
Photo courtesy of Reuters/Neil Hall