Takeover battles reveal lack of top Scottish companies on the stock market

The John Wood Group, which made its name as a North Sea engineering services company and now operates worldwide, has received no fewer than four takeover bids from Apollo Global Management, the US private equity firm, at the time of writing.

Wood said Tuesday that it was “willing to reject Apollo’s recent proposal” and said it “continues to undervalue” the company, but said it will continue to work with its candidate and its shareholders. Wood’s shares continued to gain ground on Tuesday, closing up 12.3 percent on the day, taking its market cap to over £1.5 billion. The share price was largely flat yesterday.

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The latest developments at Wood came shortly after Edinburgh-based oil and gas company Capricorn Energy saw a second merger attempt fall through, with its proposed deal with NewMed of Israel falling through following a campaign by activist investor Palliser Capital.

Less than six months earlier, Capricorn had seen a proposed merger with Tullow Oil – a £1.5bn “merger of equals” – fall through due to disagreements among shareholders, including Palliser.

It’s hard to avoid the conclusion that there will be more twists and turns in the stories of Wood and Capricorn in the coming weeks and months. Apollo seems keen to land its target, although it remains to be seen if it will return with another approach to Wood. There is also a chance that the Apollo interest will seek out other interested parties.

Capricorn’s board now includes six Palliser-appointed members after shareholder revolt led to the departure of seven directors, including former board chairman Simon Thomson, with the changing of the guard ultimately resulting in the new board advising investors against the NewMed combination to agree. For its part, NewMed agreed to end the deal.

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At the same time as the drama was unfolding in Capricorn and Wood’s boardrooms, a deal was struck that could lead to the takeover of another Scottish listed company.

Devro, the Glasgow-based manufacturer of collagen skins for the food industry, is about to recommend a takeover by Saria Nederland BV in a deal that values ​​the Scottish company at around £564m. The offer, which Devro’s board has recommended to its shareholders, is an improvement on the terms of Saria’s original approach in November. Saria manufactures raw materials based on animal by-products and organic residues for the agricultural, energy, food and pharmaceutical sectors.

“Lossing of Scottish listed companies has been a trend for a number of decades but appears to have accelerated recently,” Colin McLean, director of SVM Asset Management in Edinburgh, told The Herald. “More takeovers are taking place at the UK level as the pound is still quite weak and valuations in UK equity markets are low. By some measures, the valuation of listed small and mid-cap companies in the UK is at its lowest in 20 years compared to the rest of the world.

“The UK also has a fairly accommodating market for change of control.”

Takeover deals, of course, are the stuff of life at the top end of the corporate world. However, should Wood and/or Capricorn Devro follow and be acquired by or merged with another company, the implications could be significant, not only for the companies’ investors and employees, but for the Scottish economy as a whole.

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On the one hand, the prospect of a company takeover automatically leads to concerns about jobs and the location of the company headquarters.

In cases where a new owner is a private equity player, there is often a concern that cost cutting will be high on the agenda.

This can result in job losses or even, if the acquired company has multiple sites, a consolidation of the number of sites it operates.

Measures like these are unfortunate for the employees affected and sometimes also for companies in local supply chains. There may also be knock-on effects for the small businesses that provide staff in these areas; Cafes, convenience stores and newsagents, for example.

For public companies, a takeover that results in the company returning to private hands can lead to a reduction in demand for local professional services. It can also be argued that the loss of a public company is a blow to a country’s corporate prestige.

Once home to many large publicly traded groups, Scotland has had a sharp decline in the number of Scottish-based public limited companies of any notable size over the last three decades.

Scottish & Newcastle, ScottishPower and Kwik-Fit are among the major Scottish groups to have gone public and foreign-owned over the past 30 years.

During this period, Scotland’s historical strength as a banking center has also declined sharply in the wake of the financial crisis of 2008 and 2009.

The Edinburgh-based Royal Bank of Scotland has been drastically downsized and is now essentially run out of London under the NatWest name.

The Bank of Scotland is now part of the Lloyds Banking Group, which is also headquartered in the British capital. And Clydesdale Bank can no longer be considered Glasgow based following its merger with Virgin Money.

More recently, leading Scottish listed companies Aggreko and Stagecoach have lost their independence to companies based outside of Scotland in the last two years.

With Devro and possibly Capricorn and Wood now poised to follow suit, the continued erosion of Scotland’s stock market presence could be seen in some quarters as a sign of economic decline. Especially since there are no signs that they will be replaced by Scottish firms with significant potential in the market anytime soon.

All is not necessarily lost, however. Although Mr McLean notes that it is “very difficult to attract investor attention when new companies are listed as only sponsoring brokers are interested unless a company has a unique ownership position,” he explained: ” Scotland is building new potential for start-ups in sectors such as biotech and greentech, driven by major universities.

“Glasgow University’s Advanced Research Centre, for example, brings together different disciplines on new technologies and should be a catalyst for renewal. I think similar things are happening at the other major universities in Scotland.”

Mr McLean added: “I think Scotland may be doing no worse than most parts of the UK outside of London. However, one of the changes is less about publicly traded companies and more about company locations.

“Lockdown has provided an opportunity to regenerate Scottish cities such as Ayrshire, Stirlingshire and Fife, which still allow travel to cities one or two days a week.

“In the 1970’s and even 1980’s there were many US plants that acted as anchor institutions in East Kilbride, Greenock, Dundee etc. and have moved abroad.

“Building on hybrid work to anchor more businesses in Scottish cities would be a helpful policy, I think.”