Film and TV rights business Entertainment One (ETO) is up 6.7% to 232p, building on a strong rise yesterday afternoon, as it rejects a 236p per share offer from an unnamed suitor, widely reported as being ITV (ITV).
Speculation has been bubbling for a while over an ITV move for the Peppa Pig franchise holder and reached boiling point after lunch on Tuesday with EOne shares marked higher. For ITV the deal would help accelerate a transition away from volatile TV advertising revenues to content and boost revenues from pay-TV.
Entertainment One is vulnerable to a bid after a difficult 2015. The investment story soured in September of that year as the business revealed an 11% drop in film revenue for the three months to June as fewer titles were released. Unfavourable currency rates would also take a bite out of reported earnings, it added.
A week later, long-term shareholder Marwyn Value Investors (MVI) sold its remaining 17.9% in the business to Canada Pension Plan. Move on another fortnight and a heavily-discounted rights issue was announced to raise £200 million. Of that figure, £140 million was to increase its ownership of the Peppa Pig brand rights, the rest was for a rainy day.
These events also brought unwelcome attention on to the company’s poor cash flow performance and, combined, saw the share price halve.
Its rejection of a 236p bid makes sense when you consider it was trading above 360p in July 2015 but Liberum analyst Ian Whittaker says: ‘ ITV may not be prepared to pay the £3+ per share that we believe many E One shareholders want.’
Also in question is whether ITV would benefit from the generous tax benefits EOne banks from the Canadian government.