Banking: Big investors swat aside private equity takeover of Shawbrook

Institutions have been guilty of selling unloved companies too cheaply in the past. This may be a welcome sign that they're learning from their past mistakes

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Companies don’t lightly swat aside takeover approaches from their biggest shareholders. Challenger back Shawbrook has now done it twice. 

It's just turned down £825m, or 332.7p a share, which is the second approach from a consortium led by Pollen Street Capital. The latter floated the bank in London at 290p a share just two years ago and still owns nearly 40 per cent.

Pollen's interest in buying back Shawbrook shouldn’t come as any great surprise. Since the shares made their debut in London, their performance has been less than stellar. They traded below their float price for much of last year. The business focussed bank wasn’t helped by a bit of a snafu over bad loans over the summer.

But since then things have been looking up and it’s forecast to do quite well over the next couple of years, having just announced a 14 per cent hike in pre tax profits for 2016. 

Its underlying performance was hailed by Investec analyst Ian Gordon as “robust” and the Bank of England looks set to give it a further boost by easing tough capital rules that disadvantage smaller banks against their larger rivals.

So there is really no need for investors not linked to Pollen to sell up to it if they’ve even half an eye on the business's long term prospects.

Of course, this wouldn’t be the first time an outwardly healthy business with a depressed share price had been sold to a private equity consortium. 

For years the latter were able to make a mint by picking out unloved companies, buying them up for relatively modest premiums, and proceeding to cut out some costs, load them up with debt and bring them back to the stock market at a very tasty profit. 

Institutional investors, the sort of organisations who look after our pensions and savings, so often fell for the trick it was frankly starting to get embarrassing. 

Perhaps they have finally started to learn a thing or two. Pollen put together a consortium that first proposed a takeout price of 307p a share before upping it to that 332.7p. Prior to its interest emerging they were trading at just under 270p. Investors not linked to Pollen would get an ok premium if they accepted. Short term speculators will be quite cross that they haven't. 

However, all the indications suggest that Pollen could get there on its own if things continue to run smoothly, and that its institutional investors will benefit by staying the course. 

They will be well aware that were it to win the day, Pollen would likely be knocking on their doors in a few years time in an attempt to sell the business back to them at a much higher price. 

Shawbrook said it had engaged with Pollen’s consortium prior to the revised proposal being mooted, and then went to its other big investors with it. They said no, and so did Shawbrook

Every business has its price and this mightn’t be over. Shawbrook’s bosses will also be under considerable pressure to deliver the goods too. 

But if this is a sign that institutional investors have (finally) started to learn from their past mistakes, then good.