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IP Group's £500m approach rebuffed by Touchstone Innovations

laptop worker - © 2016 Bloomberg Finance LP
laptop worker - © 2016 Bloomberg Finance LP

IP Group has approached Touchstone Innovations with a £500m bid to create an international leader in commercialising innovation.

The FTSE 250 company said that a firm offer could hand Touchstone’s investors 2.1490 IP Group shares for each Touchstone share held, or 38pc of the enlarged group, which would be “greater than the sum of the two parts”.

However IP’s takeover target rebuffed the approach, made at a modest 4pc premium to Touchstone’s market value, although it admitted that "the proposal has certain merits". Touchstone said it was unable to agree on terms and governance prior to IP Group embarking on a £200m capital raise, which it announced separately today.

IP wants to use the proceeds from selling new shares to set up a subsidiary in Australia and New Zealand.

Both companies invest in technology and research in partnership with universities to help bring emerging ideas and technology to market. According to analysts at Jefferies a potential deal could help to diversify their businesses, particularly IP Group, which relies heavily on Oxford University spin-off Nanopore.

The Touchstone board said it engaged with IP at the behest of some of its larger shareholders, who also hold shares in IP Group, but any recommended proposal would need to reflect the best interests of Touchstone and its shareholders as a whole.

IP Group has already locked up binding support for the deal from its mutual shareholders representing just over 74pc of Touchstone. But others remain resolute against the potential deal.

Mirabaud, which holds a 1.3pc stake of Touchstone, said the approach "radically undervalues" the company.

“Touchstone has a portfolio of diversified, well managed, well developed and rapidly progressing businesses of tremendous potential. The valuation basis on which these investments are held appears extraordinarily conservative," said David Kneale, head of UK Equities at Mirabaud.

"There are several which we believe to be worth many multiples of their current carrying values; backed up by recent commercial contracts potentially worth hundreds of millions of pounds. We were very pleased to see the board reject the approach and commit to protecting the interests of all Touchstone stakeholders and shareholders," he added.

IP Group has until 5pm on June 20 to make a firm offer for Touchstone.

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