(Reuters) - British pension fund Universities Superannuation Scheme Ltd (USSL) said its Humber Bidco unit would buy telecommunication company KCOM for 504 million pounds ($651.42 million), sending KCOM shares soaring more than 30 percent.
Humber Bidco would pay 97 pence per KCOM share in cash, a premium of almost 34 percent.
KCOM’s directors intend to urge shareholders to vote in favor of the deal which they called “fair and reasonable”, USSL said.
KCOM shares surged nearly 34 percent - its biggest one-day gain in nearly two decades. They ended the day at 96.9 pence, nearly matching USSL’s offer.
The deal comes after KCOM issued a profit warning late last year that was followed by a string of management changes, including replacement of its chief executive and finance chief.
Europe-focused activist Teleios Capital, KCOM’s largest stakeholder with a 16.1 percent holding, welcomed the offer. It said it was in discussions with the management over the last two years around strategic alternatives, including a sale.
“We believe this offer represents a positive outcome for the company and all other investors,” Teleios said.
A source familiar with the matter told Reuters that Teleios facilitated KCOM to name Graham Sutherland, a former BT executive, as its new boss.
Since Sutherland’s appointment in October, he announced a review of KCOM’s business strategy a month later, saying performance of its two national businesses fell below expectations.
In its half-year report last year, KCOM posted a fall in profits, while net debt soared 60 percent to 108.5 million pounds due to investment in the Hull & East Yorkshire infrastructure in northern England.
The company’s stock plummeted 36 percent in the last three years, lagging a 12 percent rise in the broader FTSE small-cap index.
“I wouldn’t be surprised if it (USSL) looked to do some restructuring with KCOM and make it more attractive to bidders down the line in the next few years,” CMC Markets analyst David Madden told Reuters.
Started in 1899 as the telephone department in Hull Municipal Corporation, KCOM now offers managed network and cloud-based services across the United Kingdom.
It provides telecom services in Hull - a port city in East Yorkshire - the only British region where larger rival BT does not have a presence.
A Telegraph report in February said Virgin Media was exploring a takeover of KCOM to accelerate its network expansion program.
Rothschild & Co was acting as financial adviser to KCOM and Gleacher Shacklock and Arma Partners to USSL.
Reporting by Samantha Machado and Muvija M in Bengaluru; Editing by Bernard Orr/Shinjini Ganguli and Emelia Sithole-Matarise