Keyword Studios (LON: KWS) share price has staged a strong recovery in the past few weeks. It jumped to 1,470p on Friday, its highest swing since March 13th. Its highest point was a 33% increase from its lowest level this year.
Keyword Studios stock price will likely surge hard on Monday after reports emerged that EQT, a Swedish private equity company, is in talks to buy it for £2.2 billion. The company’s stock had a market cap of over $1.16 billion, meaning that EQT is paying a 70% premium.
It is unclear whether Keyword will accept the deal since it had rejected an offer before. However, I believe that a 70% premium is a good one and that the company might finally agree.
Keyword Studios stock chart
Many companies have deteriorated after turning away takeover deals. For example, Entain rejected a $11 billion offer from MGM in 2021. Today, it has a market cap of just $4.6 billion.
Similarly, THG, formerly known as The Hut Group, rejected a big deal from Apollo Global. Its market cap has now crashed to over $984 million.
Keyword’s management may also agree to the deal because of its upcoming annual general meeting, which is scheduled for Friday this week.
The most recent financial results showed that Keyword Studios’s revenue rose by 13% to over £780 million while its operating profit crashed by 35% to £47 million. Its basic earnings per share fell by 59% to 25.3 cents.
For starters, Keyword Studios is a leading company in the gaming industry. It offers game development solutions to firms like Activision Blizzard and Tencent. Some of its top games are Battlegrounds Arena, Alan Wake, and Borderlands.
Keyword’s acquisition comes at a time when demand for British companies is rising. Thoma Bravo has acquired Darktrace in a $4.5 billion deal while International Paper is acquiring DS Smith in a £5.8 billion deal.
Investors believe that British stocks are intrinsically undervalued compared to their global peers. Indeed, while the FTSE 100 index has surged, it has a price-to-earnings (PE) ratio of 13, compared to the S&P 500’s 22.
Foreign investors are also being encouraged by the weak British pound, which has dropped by over 10% from its highest level in 2021.
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