US asset manager Nuveen has launched a takeover bid for UK asset management firm Schroders, valuing the company at £9.9 billion and creating a combined entity with $2.5 trillion in assets under management. Schroders’ stock soared 28% on the news, with Morningstar analyst Johann Scholtz suggesting investors may hold out for a better price.

The proposed deal values Schroders at £6.12 per share, including dividends, representing a premium on its previous trading price. Schroders, founded in 1804, has seen its stock rise around 43% year-to-date. The deal is expected to be completed in the final quarter of the year, subject to regulatory approval.

The announcement of Nuveen’s bid for Schroders follows a trend of M&A activity in London’s financial sector, driven by global events and investor diversification. Schroders had been undergoing a transformation plan to reverse years of underperformance before the bid. The company considers the offer attractive and reflective of the benefits of a combination with Nuveen in the long term.

Morningstar’s Scholtz believes Schroders sits in an uncomfortable middle ground, lacking the scale to compete globally or the niche focus of a boutique firm. Shareholders may have limited room to negotiate higher bids, with the Schroders family holding a significant voting power and indicating support for the current offer. The 34% bid premium may not be seen as generous by all shareholders.

Prior to the bid, Morningstar assigned a fair value estimate of £4.25 to Schroders, placing it in fairly-valued territory. The stock is now trading higher at around £5.87 per share. Scholtz notes that Schroders’ asset management business is cash generative and attracting net inflows above the industry average, but faces challenges from fee pressure and the secular decline of UK active management.

Read more at Morningstar: Schroders Stock Soars 28% on ‘Opportunistic’ US Takeover Bid