Homeserve said on Wednesday that it had terminated bid talks with Domestic & General, causing shares in the group which offers insurance for domestic appliances to fall 4.6 per cent or 56p to £11.76 in mid-session trading.
D&G said it was still in talks with other potential offerors but it was “confident that significant value can be realised for shareholders through a premium offer or as an independent group.”
Shares in D&G have weakened in recent weeks as uncertainty in financial markets has made takeovers less likely, falling from a high of £14.75 early this month.
However, Homeserve, which provides emergency cover for domestic disasters, said that it had not been deterred by market turbulence, rather it had decided that D&G was not the right deal for it to pursue.
An adviser said that Homeserve had a strong balance sheet and plenty of other opportunities to expand. He said buying D&G had not been a “must-do” deal.
Homeserve’s shares had been under pressure since its announcement in May that it was in discussions with D&G met a lukewarm response. They have fallen from £20 and were trading down 3p at £16.43 on Wednesday.
At that price Homeserve’s market value is £1.07bn while D&G’s capitalisation is £448m, meaning that a bid for D&G would have been a large one for Homeserve.
Jane Sparrow, analyst at ABN Amro, said in a note: “The existing Homeserve business can deliver double-digit earnings growth without the acquisition of D&G and focus should return to this fact now.”
Although based in the UK, Homeserve operates in mainland Europe and has expanded into the US.
Roger Tejwani, analyst at Numis Securities, said that he valued D&G shares at £12.50 in the absence of a bid. He said given the current difficult funding conditions a bid at a significant premium now seemed less likely.
Copyright The Financial Times Limited 2007