SoftBank Spurs Post-Brexit U.K. M&A Hopes With ARM Bid

Well before the dust has settled on the U.K's vote to leave the European Union, an overseas acquirer has come calling at the door of ARM Holdings (ARMH) , a Cambridge, England-based chip designer and key supplier of Apple Inc (AAPL) .

SoftBank (SFTBF)  , the Japanese suitor of ARM, has, with its £24.3 billion ($32.1 billion) bid, made by far the largest move on an U.K. company since the referendum but it's unlikely to be the last.

If successful, Monday's 1,700 pence offer for ARM will provide shareholders with the opportunity to pocket a 43% premium to the  company's Friday closing price.

However, SoftBank's purchase of ARM will be at least 28% cheaper than it would have been during the same period a year ago, given the depreciation of the pound against all major currencies and a strengthening of the yen.

Shares of ARM rose by about 47%, to reach 1,750 pence, immediately after the opening bell on Monday.

In the wake of June's referendum on EU membership, the pound fell by as much as 15% against the U.S. dollar and 20% against the Japanese yen. The pound was recently down 11% against the U.S. currency compared with its pre-Brexit vote value.

However the currency had been steadily depreciating ever since the Conservative Party was reelected in May last year on a campaign promise to hold a referendum on EU membership. The post-referendum decline of the pound brought total losses for the British currency, relative to the dollar and yen, to 30% and 28% respectively, since May last year.

Speculation has increased in recent days about which companies could find themselves in the crosshairs of overseas acquirers, given the currency benefits.

Imagination Technologies  (IGNMF)  , another U.K. chip company, held abortive talks with its fifth-largest shareholder, Apple (AAPL)  early this year. The talks fizzled out and neither company would say why.

However, speculation surrounding Imagination resumed in May after a Chinese state-backed technology firm, Tsinghua Group, revealed that it has built a 3% stake in the Kings Langley, England based chip designer.

Liberum Capital analysts suggest Imagination could be a prime target, citing restructuring progress.  They also suggest that, for Apple, buying Imagination would be the easiest way to improve its graphics capability.

Shares of Imagination Technologies rose sharply on Monday morning, rising 10.5%  to a three-month high of 205 pence after news of the ARM bid.

(Apple is held in Jim Cramer's charitable trust Action Alerts PLUS. See all of his holdings here.)

ITV (ITVPF) , the U.K's largest independent free-to-air broadcaster, became the subject of bid speculation in 2014 when John Malone's Liberty Global  (LBTYA)  acquired a 6.6% stake in the group. Liberty later added to its position, taking the total stake to 9.9%.

Liberty executives have always heralded their investment as an opportunity to own a slice of one the U.K's leading broadcasters.

However, others have viewed the company's shareholding as a strategic attempt to protect its investment in Virgin Media (VMED) , by establishing a blocking position in the company to prevent other overseas acquirers from using it as part of an effort to challenge Virgin.

Only time will tell if Liberty would be willing to place its near-10% stake on the bloc for the right price.

Liberum recently named ITV as a likely target of overseas bid interest. The shares were little changed in early London trading, rising by 0.4%, to 190.0 pence.

Other companies that could stand to benefit from a post-Brexit M&A frenzy include those in the pharma, telecoms, beverages and resources sectors.

GlaxoSmithKline (GSK)  and other pharma companies stand to benefit from the fall in sterling given their large streams of  foreign currency-denominated revenue. 

Although the defensive nature of pharma has led share prices across the sector to rise notably since the referendum, at least some of this increase could be mitigated by the lower cost of sterling, which may yet prove enough to prompt renewed interest from across the Atlantic.

Large U.K telecoms companies could also find themselves in the spotlight. The sector has fallen from favor with investors so far this year.

And it seemed in May that the prospect of any further interest in British telecoms from overseas had all but evaporated, after the European Commission shot down CK Hutchison's attempt to buy one of the U.K's largest network operators, O2. But share-price and currency declines could yet spur bid interest. 

Telefonica (TEF) is still looking to exit the U.K through the disposal of O2, a sale process which could act as a valuation bellwether, while the prospect of a downturn in the U.K economy could drive valuations for smaller telecoms firms, such as TalkTalk  (TKTCY) even lower. 

Analysts at Jefferies this week downgraded their rating for TalkTalk to underperform, citing the effects of an anticipated economic slowdown and management's guidance, which has suggested that profits will be weighted significantly toward the final half of the year.

Jefferies assigned a price target to TalkTalk of 140 pence, for shares currently trading around 220.0 pence, implying downside of 36% from current levels. 

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