Brexit Makes a $4.2 Billion Black Friday Bargain

(Bloomberg Opinion) -- A U.S. medical technology company has found a Black Friday bargain in the U.K. stock market – a peer whose weak share price looks even cheaper when translated into dollars, and whose revenue almost entirely comes from North America.

Boston Scientific Corp. has seen its chance and agreed to buy London-based BTG Plc for 3.3 billion pounds ($4.2 billion). If the deal is consummated, the British maker of medical devices will join the growing list of internationally-flavored U.K. companies falling prey to overseas bidders.

This has been a rough year for BTG. The stock fell nearly 40 percent between January and mid-July as one of its lead devices, a lung coil for emphysema, struggled to secure U.S. regulatory approval. Before Tuesday’s bid, the shares hadn’t fully recovered. The 840 pence-a-share offer may be only 13 percent above where the stock was a year ago – but that’s still a hard-to-reject 52 percent premium over the shares’ average price over the past six months.

If Boston has been opportunistic, it has not got a steal. Adjust for BTG's net cash, and the transaction is worth 3 billion pounds. Boston expects to generate synergies of $175 million from revenue gains and, above all, job cuts. Assume it can lift BTG’s estimated 2022 operating profit by 100 million pounds, and the figure would climb to around 370 million pounds. So, after tax, the purchase should generate close to a 10 percent return – good enough, but no more.

True, BTG's market value on Monday was about $700 million less than it was before the 2016 referendum, thanks to a slightly softer share price and a much weaker pound. But, with the setback around the lung coil device, the company’s prospects are also quite different to what they looked like two years ago. 

The shares are hovering just below the bid price. An interloper remains a possibility. While Boston has secured irrevocable commitments from owners of roughly a third of BTG’s stock, these could still drop away if other shareholders reject its offer in order to accept a rival bid.

The U.K. is losing another member of an industry that is core to Prime Minister Theresa May’s industrial strategy at a time when a weak currency is at the very least making British companies with international revenue streams more affordable. BTG built up its business by buying abroad; what goes around comes around. The government will surely be hoping that investors recycle the cash proceeds from this deal into the next generation of BTGs.

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

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