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TDR Capital finally hits the bullseye with Arrow Global offer

This the fifth approach by the private equity group
April 7, 2021
  • Arrow Global is recommending an all-cash takeover offer of 307.5p per share
  • The bid is a 33 per cent premium to the company's closing price on 4 February

It appears that the fifth time’s a charm for TDR Capital. The private equity group has finally struck an agreement to take over distressed debt specialist Arrow Global (ARW) for 307.5p per share, following earlier approaches at 250p and 265p in December, 290p in January, and 305p in February.

The sweetened bid is a 33 per cent premium to Arrow’s closing price on 4 February – the day before TDR’s takeover interest was first disclosed – and values the company at around £563m.

TDR’s recent overtures received the backing of Arrow’s founder and chief investment officer Zach Lewy, who owns a 2.1 per cent stake in the company. He signed a binding letter of support in February that precludes him from voting in favour of any competing offer tabled before 5 May.

In light of Lewy’s position, and following shareholder feedback, the latest proposal has proved sufficient to win Arrow’s board over. Yet not everyone is convinced. Analysts at Peel Hunt see the offer as “underwhelming” and believe that “greater value could be generated through a successful execution of management’s capital-light strategy.”

The market does not seem to share the broker’s view. News of the offer sent Arrow’s shares up 6 per cent to 305p, just shy of the bid price.

The company's recent full-year numbers may explain why investors seem receptive to a deal. Arrow swung to a £115m pre-tax loss in 2020 following a £96m writedown of its ‘estimated remaining collections’ (ERC) asset. Its secured net debt now also stands at more than 5 times adjusted cash profits and is only guided to fall to a multiple of 4 by the end of this year. We think shareholders should accept the offer when a vote is scheduled.

Last IC View: Hold, 288p, 08 Feb 2021