Currys backer warns of UK market decline after board rejects £700m takeover offer by US hedge fund

Currys’ biggest shareholder has warned that the stock market is not fit for purpose.

Redwheel, which owns 14.6 per cent of the London-listed firm, backed the decision by the electrical retailer’s board to reject a £700million takeover offer by US hedge fund Elliott Partners. 

But it said that without reforms, more undervalued British companies are at risk of falling into foreign hands.

Ian Lance, co-head of Redwheel’s UK value and income team, added: ‘This offer for Currys does highlight a wider problem with the UK equity market which no longer seems to fulfil its primary purpose of price discovery and efficient capital allocation.

‘Some of the largest market participants in the UK have been allocating away from UK equities, which are close to all-time low valuations.

Redwheel, which owns 14.6% of Currys, backed the decision by the electrical retailer’s board to reject a £700m takeover offer by US hedge fund Elliott Partners

‘Instead, investors are allocating to US equities, at close to all-time high valuations. This has resulted in pockets of the UK equity market being valued significantly below the true value of the businesses.’

Lance said: ‘Unless this changes, it seems likely that we will continue to see overseas corporate buyers step in to take advantage of the depressed valuations of UK equities, with ownership falling into foreign hands.’

Businesses such as chip designer Arm and travel firm Tui have shunned the City in favour of overseas bourses.

Efforts to revive the UK market with a series of reforms have so far failed to have much effect. 

This weekend it emerged that Currys had been approached by New York-based Elliott, but rejected the offer. It subsequently emerged that Chinese online retail giant was also assessing a bid.

Currys said the Elliott offer ‘significantly undervalued’ the business and analysts at Peel Hunt said the board was unlikely to engage with an offer anywhere below £900million.

But the analysts also warned that it could mark the start of a swathe of takeover offers for UK retail companies whose bargain basement prices make them an attractive target.

Redwheel yesterday became the first major investor in Currys to make public its view on the spurned Elliott offer. 

It said it was ‘in complete agreement’ with the board that the business was ‘worth substantially more’ than the 62p per share deal that was proposed.

Lance said: ‘We believe that a healthy equity market is beneficial to the functioning of the economy and would urge the relevant UK authorities to take action to incentivise investors to allocate to UK equities and save an integral cog of the country’s financial eco-system.’