Take-privates: Playing hard to get?

In many ways Southern Cross would seem the perfect opportunity for a private equity investor to acquire a business cheaply and turn its fortunes around. The company's share price has tumbled by 80% in the past six months over concerns its business will be severely impacted by UK local authority spending cuts. It has also been hit by rent rises of between 2.5% and 2.7% after it sold many of its freeholds to fuel earlier expansion plans.

With rent, staff and home running costs accounting for 97% of its revenues, the group is extremely vulnerable to small changes in occupancy rates. Prior to Friday's offer, it share price was just 10.25p, down from over 150p in February this year.

However, despite the group's obvious problems, the board and management rejected TowerBrook's approach in favour of examining other options.

Similarly, Brit Insurance declined an offer from US-based private equity investor Apollo in June this year, also prompting a rapid increase in its share price, which remains over 20% higher than when it received the offer.

With public markets continuing to suffer from the fallout of the financial crisis, they might seem like easy pickings for private equity funds. However, a flood of take-privates has been expected for some time, but has failed to materialise.

Despite low valuations, it seems boards and management teams are hopeful their businesses will recover value for shareholders in years to come. Private equity bidders may have to up their game or look elsewhere, as listed companies play hard to get.

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