- BT and Aurelius circling Musicmagpie
- Redde Northgate/Halfords merger talks rumoured
- Analyst sees some logic in proposed tie-ups
Potential bids for two unloved stocks have come out of the blue and from unexpected suitors to boot, as the UK takeover machine continues to whir.
Shares in Musicmagpie (MMAG:AIM) fluttered 30% higher to 25p after the refurbished electronics seller confirmed it is in early stage talks with BT (BT.A) and private equity group Aurelius over a possible bid.
Meanwhile Halfords’ (HFD) shares were flat at 233p in early dealings, bringing a recent rally to a halt, on reports Redde Northgate (REDD) held merger talks with the motoring-to-cycling products seller but couldn’t agree on valuation.
WHY WOULD BT SWOOP ON MUSICMAGPIE?
Responding to recent speculation, Musicmagpie confirmed it is in talks with both BT and Aurelius over a possible offer, though the smartphones-to-computers recycler stressed discussions between the parties remain at ‘a very early stage’.
Shares in the Stockport-headquartered company have plunged the best part of 90% from April 2021’s initial public offering issue price of 193p amid downgrades, the consumer spending downturn and concerns around increased competition.
Poor results for the first half to May 2023 showed a widening of pre-tax losses from £1 million to £3.2 million as revenue softened from £71.3 million to £61.9 million following a challenging first quarter blighted by postal strikes and low consumer confidence.
However, speaking at the time, CEO Steve Oliver insisted that despite the tough consumer environment, ‘we expect consumers to increasingly look to the refurbished tech market and are confident that the business has the right strategy in place for future profit growth.’
Russ Mould, investment director at AJ Bell, explained that Musicmagpie has evolved from selling CD and DVDs for pennies to one that sells, fixes and rents out mobile phones and other electronic devices.
BT and its mobile brand EE deal in large volumes of phones, ‘so having an in-house refurbishment business in the form of Musicmagpie would make sense’, said Mould. ‘It also helps that the latter is going cheap, having been a disaster since it joined the stock market a few years ago.’
As for Aurelius, the private equity group which has just completed the acquisition of The Body Shop for a knock-down price, it is ‘perhaps interested in taking the retail side of the group which sells goods via its own website and via Ebay and Amazon’, mused Mould.
COMPLEMENTARY SKILLS
A van hire company buying a car parts-to-bicycles retailer is not the most obvious partnership, yet as Mould explained, Redde Northgate and Halfords have ‘complementary skills’ and putting them together would broaden their reach, since ‘Redde could have greater access to the consumer market and Halfords to the business market’.
In recent years, Halfords has been trying to reposition itself as a motoring services business, reducing its reliance on selling bikes and investing more in garages and hiring workers to fix vehicles, while Redde Northgate was formed from the merger of two businesses active in accident claims management and van hire.
Mould said that in theory, ‘a combined Halfords/Redde entity would have more skills by which to try and take market share in the motoring sector, one that is undergoing rapid evolution due to the shift to electric vehicles.’
Redde Northgate is not the only company to have spotted the hidden value in Halfords.
Bridgestone, one of the world’s biggest tyre manufacturers, has agreed to pay US$3 million for a 5% stake in its Avayler automotive software as a service unit, implying a value of $60 million for Avayler, in what broker Peel Hunt described as ‘a major coup’ for Halfords.
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.
