Finance

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.

From time to time, British politicians can't resist calling for curbs on hostile takeovers.

Shareholders in SVG Capital, one of Britain's biggest investors in private equity funds, would have been badly served by such constraints. On Tuesday, the company agreed a cracking deal to sell its investments to Boston-based rival HarbourVest. And it all started with a hostile bid by HarbourVest just five weeks ago.

Higher and Higher
SVG's stock jumped as bidders circled the British company
Source: Bloomberg

It's a reminder that the omnipresent threat of a hostile assault is one of the best ways to keep CEOs on their toes.

SVG CEO Lynn Fordham was presiding over a funds business that was trading at a 15 percent discount to the net value of its asset before HarbourVest surfaced. Yet she was paid 3.9 million pounds ($5 million) for the most recent fiscal year.

Coller Investment Management, the company's biggest shareholder, was so cheesed off that it immediately gave binding support to HarbourVest's bid. Three other big money managers said they were minded to back the offer as well. Others sold in the market immediately. On day one, more than half of the shareholder register was against Fordham.

Her only available defense strategy was to get an auction started.

Climbing Higher
The price for SVG rose with each bid
Source: Bloomberg
Price is in pence per share

In just five weeks, Fordham secured two other proposals. These, in turn, forced HarbourVest to switch: instead of making an opportunistic bid for the company, it had to make a steep offer for SVG's holdings. The latter has a more favorable tax treatment, which helps to fund this more generous proposal.

HarbourVest is offering 807 million pounds for the investments --- 5 million pounds more than their July 31 valuation. After adding SVG's remaining cash and deducting various costs, this will enable SVG to return 1.12 billion pounds, or 715 pence a share, to shareholders. That's a mere 2.7 percent discount to the firm's most recent net asset value.

A bad deal for the buyer? The pound's recent plunge should have lifted the value of the investments acquired to about 850 million pounds. But HarbourVest will also get the right to put money into the private equity funds SVG has already pledged to invest in. It will make money from the deal -- but the benefits will take as long as a decade to come through.

HarbourVest may have thought that making a friendly approach to SVG would have just sucked it into protracted negotiations over price. But hostility got it embroiled in an auction, and both sides ran up big advisory fees with their bankers and lawyers. The Boston buyer still won -- but hostility served SVG shareholders even better.

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:
Edward Evans at eevans3@bloomberg.net