Deals

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

Investors are expecting a bidding war for SVG Capital. They may not get that, but the British funds group might do better than this week's 650 pence all-cash bid from Boston rival HarbourVest.

The shares leapt to 684 pence on Friday after SVG said several “credible parties” had made approaches. With HarbourVest having pledged not to raise its offer, SVG’s stock is baking in a high probability that an alternative will emerge.

SVG boss Lynn Fordham needs another buyer on the hook fast. HarbourVest has set a deadline of October 6 for investors to tender to its bid. While it could extend that, shareholders aren’t going to want to take any chances. Some 43 percent of the SVG register has signalled that it wants to sell out at 650 pence a share in cash. If HarbourVest’s bid is the only way of doing that as the deadline approaches, they'll take it. HarbourVest would then gain majority control as it has an 8.5 percent stake itself.

The short timetable is not an insurmountable obstacle to an alternative deal. SVG should be reasonably easy for a rival suitor to weigh up: it's an investment portfolio, not a complex multinational. And at its current 1.1 billion pounds value ($1.4 billion), SVG isn’t so big that raising committed financing would be a challenge in three weeks.

The difficulty will be price. If Fordham can get an offer at just 651 pence a share, HarbourVest’s assault is dead. It would be surprising if no other bidder saw the same value in the portfolio, plus 1 pence a share. Indeed, given that SVG's executives believe the offer is too low, it would be logical for them to assemble a management buyout and put that to shareholders as an option.

It’s less clear that two new bidders will emerge to create an auction delivering a deal at today's energized share price. This is just a 6 percent discount to SVG’s 31 July net asset value of 735 pence, adjusted for an 8 pence hit for certain post-balance sheet events. That may be too narrow to tempt a savior into a high-profile, hostile situation that needs to be fought out quickly.

Catching Up With Reality
HarbourVest's hostile bid for SVG has pushed the shares close to their latest net asset value
Source: Bloomberg

So SVG’s defence is off to a good start. But the group is still beholden to other bidders who may or may not come up with the goods. That explains why SVG is neither recommending nor rejecting HarbourVest’s offer just yet. The Boston bid may yet be the best one on the table in a few weeks time.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Hughes in London at chughes89@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net