ITV has been rebuffed in a £1bn takeover offer for Entertainment One (eOne), owner of hit children’s TV show Peppa Pig, as it looks to extend an acquisition spree aimed at reducing its reliance on volatile advertising income.
Canadian film and TV producer and distributor eOne said it had received and rejected a preliminary proposal to buy the company for 236p a share, or £1.01bn in total.
Speculation about a bid from ITV has pushed eOne’s shares up by more than a third since April, when eOne denied it had received an approach from the broadcaster.
ITV said its offer was significantly above the “undisturbed” share price of eOne, before rumours of a bid began to push the value of its stock upwards.
But in a statement to the London Stock Exchange, eOne said the price tag was not high enough, citing the company’s potential for future growth. “The board of eOne has reviewed the proposal and has unanimously rejected it on the basis that it fundamentally undervalues the company and its prospects,” it said.
The Canadian target did not initially identify ITV as the bidder, but later updated the markets with a second announcement.
Shares in the firm rose 6% after the announcement to 232p, having climbed 10% to 217.5p on Tuesday as speculation about a bid filtered through to stock market investors.
EOne, based in Toronto but listed on the London Stock Exchange, sells the rights to TV shows such as The Walking Dead and films including the Twilight and Hunger Games series. Its most highly prized asset is Peppa Pig – the top preschool entertainment brand in the UK, Spain, Australia and Latin America.
Analysts said ITV was keen to get hold of eOne as part of an ongoing effort to wean itself off volatile and declining advertising revenue by snapping up firms that make shows it can sell around the world.
The strategy, implemented by its chief executive, Adam Crozier, a former boss of Royal Mail and the Football Association, has seen ITV embark on a string of big-ticket acquisitions to fold into its ITV Studios division.
ITV has spent more than half a billion pounds on such deals in the past few years, including the £355m purchase of Talpa Media, maker of singing talent show The Voice and Channel 4 drama Utopia.
Its UK deals include Mammoth Screen, which made hit Cornish period romp Poldark for the BBC, and Big Talk, which is making a new series of much-loved comedy drama Cold Feet.
ITV’s efforts to sell shows around the world have also seen it make inroads in the US, including a hefty $360m (£280m) deal for 80% of reality TV specialist Leftfield Entertainment, maker of The Real Housewives of New Jersey.
“Content is key in terms of getting bums on seats,” said Laith Khalaf, senior equity analyst at investment firm Hargreaves Lansdown.
“For ITV particularly, it’s shifting emphasis from being a company focused on getting advertising revenue to one that branches out into creating its own content that it can sell to other broadcasters as well as using for its in-house stations.
“It [the bid for Entertainment One] is part of an ongoing shift to build more content and diversify revenue streams.”
“You’ve seen it with the huge amount of money paid, for instance, for Premier League TV rights. Exclusive content is hugely important with advertising income being so economically sensitive.”
Ian Whittaker, an analyst at Liberum Capital, said ITV was unlikely to increase its offer by much. “We think ITV may not be prepared to pay the £3+ per share that we believe many eOne shareholders want,” he said, adding that spending too much could force it to scrap a special dividend worth 10p per share.
Whittaker also raised the prospect that ITV might look to sell the Peppa Pig franchise to a “more children-orientated” company.
Alex DeGroote of City stockbroker Peel Hunt also expressed reservations about the potential for a deal, warning that ITV’s financial health could suffer from a “bidding war with some very deep-pocketed overseas buyers”.
ITV’s stable of programmes has also made it a potential takeover target for global media companies.
In October, Entertainment One took control of the UK producer Astley Baker Davies, which created Peppa. The deal increased its share of the rights to the porcine protagonist from 50% to 85%.
But the company suffered a setback in March when it announced disappointing box office sales of films including the Steve Jobs biopic.
