LONDON – Toronto-based Entertainment One, the owner of children's TV cartoon character Peppa Pig, has rejected a 1 billion-pound (US$1.3 billion) takeover offer from U.K. broadcaster ITV, saying it undervalued the TV and film production and distribution company.
"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.
eOne says its library of rights alone were independently valued at over US$1 billion last year and includes over 40,000 film and television titles, 4,500 hours of television programming and 45,000 music tracks. Typically, last year it acquired the European licensing rights for the DreamWorks Studios film of Roald Dahl's children's book "The BFG."
Alternative asset investing firm Livermore Partners, that holds a stake in eOne, wrote a letter back in January demanding that the company strengthens its board or start returning cash.
David Neuhauser, managing director of Livermore Partners, told BNN that while he believes the company has been mismanaged in terms of their delivery and strategy, he sees eOne’s potential for generating cash flow and agrees it’s undervalued.
“I have strong respect for ITV and I like their CEO Adam [Crozier] – and I think he would be a good steward of these assets if they end up acquiring eOne,” he said in an interview. “But we think there’s more value to it.”
Meanwhile ITV, Britain's biggest free-to-air commercial broadcaster, has been busy for several years buying up production companies, particularly in the drama and reality TV genres, to reduce its reliance on U.K. TV advertising sales.
"A key part of that 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."
Buying eOne would bolster ITV's activities in television production and family entertainment as well as giving it an international film distribution business.
Entertainment One's chairman Allan Leighton is a long-standing admirer of ITV's CEO Crozier, having appointed him to run Britain's Royal Mail Group in 2003.
ITV has been pursuing eOne for some time, according to media reports, although eOne said in April it had received no approach.
Wednesday's offer of 236 pence a share in cash is a 19 per cent increase on 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 per cent, ITV said.
The shares were trading up 6.6 per cent at 232 pence by 1030 GMT, when ITV's shares were 0.1 per cent higher at 199 pence.
Analysts at Investec said last month that with more than 80 per cent 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.
They raised their price target to 245 pence a share, based on their estimates for core earnings to rise in the year to end-March 2017 to 152.6 million pounds from 129.1 million pounds in the previous year.
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.
eOne has been criticsed by U.S activist shareholder Livermore Partners for the pace of its dealmaking and what it said was a lack of focus on its cashflow.
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 per cent of The
Mark Gordon Company, the producer of TV shows including "Grey's Anatomy" and movies including "Steve Jobs" and "Saving Private Ryan."
--With files from BNN
eOne's Greatest Hits
What did eOne's board mean when it stated that ITV's bid "fundamentally undervalues the company and its prospects"? Here's a look at some of the titles and names under the company's umbrella.
The Big Screen
box office in North America.
The Small Screen
the Walking Dead and Hell on Wheels.
Home Video
Family Programming and Merchandising
'$1 Billion in licensing and merchandising retail sales a year' eOne’s website boasts.
Music
under the eOne umbrella.
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