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The best player in FTSE 250 yesterday (25 November) was ITV (LSE: ITV). The share price rose 8.65% to the day’s high, continuing the volatility of several weeks for the stock. I took a closer look at the stories that created the movement to see if this could be the start of something big.
An important catalyst for the movement
The spotlight came after media outlets reported over the weekend that the company had been attracting takeover interest. According to independent sources, early discussions have taken place between ITV executives and independent officials regarding a possible deal.
Part of the reason why this may not be a false discussion is due to the performance of the share price in recent years. The stock is down 45% over the past three years. The latest results for the year 2023 showed a 41% decline in earnings per share. Although H1 2024 results were better, revenue was down 13% compared to the same period last year.
Another reason why a takeover may be considered is the perceived profitability and potential value of ITV Studios’ turnaround. This business area is seen as a bright spark. The manufacturing factor is predicted to deliver record profits by 2024. This is in contrast to the traditional advertising category, which has seen demand decline. If the company is bought, any buyer could stand to make a profit by selling the profitable Studios arm and focus on turning the rest of the company around.
Taking a step back
If negotiations become serious and a potential bid is forthcoming, I would expect it to be higher than the current share price. Usually with public procurement, this is what happens. In that case (or before) speculative buyers can jump in and push the share price down.
So even though the team may just move away from that path, it doesn’t mean I’m going to invest. First of all, no agreement is possible. If so, I have to think, do I want to own the stock even if the management is forced to try to solve the problems on their own? Or maybe a deal would happen, which wouldn’t mean I could make a quick buck but that’s it. After all, the stock is likely to be taken off the market once it is liquidated.
If I were a professional investor focused on mergers and acquisitions, this would be an opportunity to jump on. However, I like to buy stocks with a long-term approach. On that basis, it doesn’t matter to me if a temporary meeting is started here. Of course, I might miss out on a good buy. But buying and selling based on media rumors is not something I’m into these days.
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