A British pension fund is to snap up Yorkshire telecoms company KCOM in a £504m deal, sending shares soaring more than 30 per cent.
Universities Superannuation Scheme Ltd (USSL) said its Humber Bidco unit would pay 97 pence per KCOM share in cash, a premium of almost 34 per cent.
The directors of Hull-based KCOM intend to urge shareholders to vote in favour of the deal which they called “fair and reasonable”, USSL said.
KCOM shares surged nearly 34 per cent - its biggest one-day gain in nearly two decades. They ended the day at 96.9 pence, nearly matching USSL’s offer.
The deal comes after KCOM issued a profit warning late last year that was followed by a string of management changes, including replacement of its chief executive and finance chief.
Europe-focused activist Teleios Capital, KCOM’s largest stakeholder with a 16.1 per cent holding, welcomed the offer. It said it was in discussions with the management over the last two years around strategic alternatives, including a sale.
“We believe this offer represents a positive outcome for the company and all other investors,” Teleios said.
A source familiar with the matter told Reuters that Teleios facilitated KCOM to name Graham Sutherland, a former BT executive, as its new boss.
Since Sutherland’s appointment in October, he announced a review of KCOM’s business strategy a month later, saying performance of its two national businesses fell below expectations.
In its half-year report last year, KCOM posted a fall in profits, while net debt soared 60 per cent to £108.5m due to investment in the Hull & East Yorkshire infrastructure in northern England.
The company’s stock plummeted 36 per cent in the last three years, lagging a 12 per cent rise in the broader FTSE small-cap index.
“I wouldn’t be surprised if it (USSL) looked to do some restructuring with KCOM and make it more attractive to bidders down the line in the next few years,” CMC Markets analyst David Madden said.
The telecoms firm can trace its roots back to 1904, when The Hull Telephone Department opened its first exchange.
KCOM now offers managed network and cloud-based services across the UK.
It provides telecom services in Hull, famed for its cream coloured phone boxes. It’s the only area in the UK where larger rival BT does not have a presence.
KCOM floated in 1999 at 225p a share and its value soared during the dot com boom in 2000 to £16 a share.
Hull City Council held a large stake in the company until 2007 and at one time was one of the richest public sector bodies as the company expanded.
However, KCOM saw its share price tumble by about 80 per cent during the financial crisis in 2008 which resulted in the exit of its chief executive Malcolm Fallen.
Bill Halbert was at the helm of the company for a decade and set about investing in ultra fast fibre deployment in Hull and winning large public service contracts.
However, his departure this year following a profit warning meant the share price took a nosedive and increased the pressure to find a buyer.
A newspaper report in February said Virgin Media was exploring a takeover of KCOM to accelerate its network expansion program.
USSL has £64bn of assets under management and typically looks for infrastructure-type investments.
UK telecoms has been targeted by infrastructure investors that have looked for both established players and newer entrants to the market.
Rothschild & Co was acting as financial adviser to KCOM and Gleacher Shacklock and Arma Partners to USSL.