In business, as in life, marriages that start in blissful anticipation all too often end up in disillusionment and frustrated hopes. Yet this year seems to be bucking the trend

INVESTMENTS

Something unusual is happening in the stock market. Not only are bids and deals happening at a record rate, with this year looking set to beat all previous records for takeovers and mergers. But many of these deals are winning rare plaudits from investors, with shares of both parties rising on merger announcements - a ''win-win'' outcome that, if sustained, will confound many lessons of investment history.

The historical evidence is clear. Mergers do not by and large add value for both sides. Often bidders get carried away and pay more than they should to achieve victory. In other cases, the hoped-for benefits of the deal simply fail to materialise. In business, as in life, marriages that start in blissful anticipation all too often end in disillusionment and frustrated hopes.

Yet this year seems to be bucking the trend. It started with the biggest deal of all, the Glaxo bid for Wellcome, which all the evidence suggests is going to provide significant value for shareholders on both sides. Those in Wellcome have already pocketed a lot of cash; those in Glaxo have also seen their shares rise strongly since the deal was done.

Now we have a second example of the phenomenon, with the Lloyds Bank bid for TSB. Shares of both companies have risen since the proposed merger between the two banks was announced a fortnight ago. Analysts and fund managers have generally welcomed the deal as a sensible next stage in what must be the inevitable consolidation of banking business.

It brings together the management with the best track record among the big clearing banks (Lloyds) and an asset-rich business that has always looked the wrong shape and size to break free from its unusual historical roots (TSB). It is a case where the promised benefits - eliminating costs and branches - seem clear-cut.

It is true that there are plenty of other examples for this year's takeover activity where the benefits look much more marginal. Perhaps the most remarkable feature of all this frenetic deal-making is that an example of apparent winners all round should emerge from the financial sector, where success of this kind is normally least expected.

Whatever the essence of good banking, successful deployment of shareholders' funds in expansionary moves has not by and large been it. Who can forget such egregious follies as Midland's disastrous bid for Crocker in the United States, or the Barclays rights issue just a few years ago when every penny was squandered in what seemed a matter of months?

One reason why takeovers in aggregate usually fail to deliver the benefits promised by the bidder's management is that so much of bidding activity is driven not by economic logic, but by fear or fashion - the dreaded ''me too'' syndrome. If company ABC reckons it is time to take over another, then you can be certain DEF in the same business will immediately think very hard about doing the same.

If you want an example of such vogue activity, just look at the wave of consolidation now sweeping through the drugs and media industries, or closer home at what is happening to building societies, mutual life companies and regional electricity companies.

Seven of the 12 regional electricity companies have received bids already this year, and if there is a single mutual company of any size that has not considered a merger or flotation this year, it must be keeping very quiet about it. In the US, banks are going through a similar wave of consolidation, with last month's Chase Manhattan / Chemical Bank tie-up in New York being followed this week by Wells Fargo's $10bn bid for a fellow Californian bank.

Such powerful phases of consolidation are easy to rationalise at the time. Any merchant banker worth his crust could give you a dozen reasons today why consolidation is necessary in the drugs, banking or electricity business. The trouble is that the patter is plausible, but the logic needs more careful analysis. What is true for one company is rarely true in aggregate.

As a rule of thumb, if the management of a bidding company has to rely on an outsider (or worse still a competitor) to explain why it should be bidding, then the chances are that the benefits it claims to expect will not materialise.

In fact the greatest rewards often go to those who are strong enough and independent-minded enough to resist the herd instinct and stick with their own strategy.

The banking sector itself provides the clearest example. A good deal of the current high standing enjoyed by the management of Lloyds Bank is due to the fact it deliberately stood aside from the feeding frenzy that seemed to grip most of the other banks after the introduction of the City's Big Bang in 1986. Alone among the clearers, Lloyds refused to join the race to buy up brokers, jobbers and investment bankers - a decision for which its shareholders have much to be grateful.

Now, however, it is embarking on a buying spree of its own. The TSB will be added to the Cheltenham & Gloucester to create a more broadly based retail banking business.

The logic of the merger in this case seems genuinely hard to fault; it looks like a coherent and sensible response to the impact that the combined forces of information technology and deregulation are having on the competitive environment in banking.

If so, the Lloyds shareholder may yet live to glory in the day, but don't expect every other deal in the sector to have the same happy ending.

The real reason that building societies and mutual life companies are merging or floating on the stock market is not that there is anything wrong with mutuality per se, but because their industries are suddenly - and some would say belatedly - being exposed to rigorous competition for the first time.

Just as in electricity, the strong must be expected to drive out the weak.

The one certainty, however, is that a good number of the deals that are now being consummated will end in disappointment for managements, customers and shareholders alike.

Start your day with The Independent, sign up for daily news emails
News
Bill Gates, founder of Microsoft and co-chair of the Bill and Melinda Gates Foundation
businessUber, Snapchat and Facebook founders among those on the 2015 Forbes Billionaire List
News
news... and what your reaction to the creatures above says about you
News
Homer’s equation, in an episode in 1998, comes close to the truth, as revealed 14 years later
science
News
news
Have you tried new the Independent Digital Edition apps?
Finacial products from our partners
Property search
This phoenix rose from the stage at the London Olympics. The insurer grew out of zombie life insurance funds

Phoenix Life: Chance of a refund for overcharged policyholders has risen

A retired adviser got his money back from the insurer after claiming he had been overcharged. Thousands of others may have a strong case
Expect a new wave of fishing expeditions by fraudsters now we can invest our life savings

Cold callers and your pension: watch out for dangerous boiler room scams

Sean O'Grady received a cold call last week that was much more sinister than normal. Yes, someone wants to get their hands on his pension...

Fuel poverty could claim 100,000 lives over next 15 years, warns energy charity

The NHS is currently bearing a yearly burden of approximately £1.5bn treating cold-related illnesses every winter

MPs call for Equitable Life policyholders to be paid £2.8bn owed by government

Hundreds of thousands of people's policies were hit when the mutual insurer almost collapsed at the turn of the century

The elderly woman's family discovered the mistake

DWP criticised after it left a pensioner £26,000 worse off

The Department for Work and Pensions has been slammed after a series of cock-ups left an elderly pensioner £26,000 worse off.

The FCA has today issued a consultation paper on its plans to tighten up consumer credit rules to give consumers greater protection on guarantor loans and in other areas

Payday loan companies must publish their rates, says CMA

A 20-month investigation concluded that a lack of price competition between lenders has led to higher costs for borrowers

Vulnerable consumers are defined as those with poor literacy skills, those who have caring responsibilities, people with disabilities, dementia or the old

Financial companies are not meeting the needs of vulnerable consumers, says City Watchdog

The Financial Conduct Authority said the industry needs to start thinking about solutions to these challenges

The FTSE 100 is inching closer to its record high but can it maintain these levels?

In 1999 stock markets quickly tumbled, losing many a fortune in the process

Tax-free savings: Freedom dawns for the junior savers caught in low-income accounts

The parents of six million children stuck with low-interest saving accounts worth more than £5bn will be able to move the cash from this April. But what are their options? Samantha Downes reports

How much lower will mortgage rates go?

Another day, another cut. As lenders compete to offer the cheapest deals, Simon Read asks if borrowers should jump in now or wait for further falls

Are bills ruining your family life? Try the lover's guide to coping with debt...

If you're in the red and can't find a way out, it's time to get some help. Neasa MacErlean hears that relationships will suffer unless you are open with your partner, but there are organisations that will put you on the right track and get you talking

How to complain: From retailers to energy suppliers, it's easier than you think

When companies let us down, millions of us just take it on the chin. Simon Read shows how to make your voice heard
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

    £25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

    Recruitment Genius: Customer Service Advisor

    £15000 - £16000 per annum: Recruitment Genius: A Customer Service Advisor is r...

    Ashdown Group: Trainee Consultant - Surrey / South West London

    £22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

    SThree: HR Benefits Manager

    £40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

    Day In a Page

    The difference between America and Israel? There isn’t one

    The difference between America and Israel? There isn’t one

    Netanyahu knows he can get away with anything in America, says Robert Fisk
    Families clubbing together to build their own affordable accommodation

    Do It Yourself approach to securing a new house

    Community land trusts marking a new trend for taking the initiative away from developers
    Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

    David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

    The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
    With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

    Money, corruption and drugs

    The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
    America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

    150 years after it was outlawed...

    ... America's first slavery museum is established in Louisiana
    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
    Tony Oursler on exploring our uneasy relationship with technology with his new show

    You won't believe your eyes

    Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
    Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

    Moores must go. He should never have been brought back to fail again

    The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
    War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

    The battle for Mosul will unleash 'a million refugees'

    Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
    Yvette Cooper: We can't lose the election. There's too much on the line

    Yvette Cooper: We can't lose the election. There's too much on the line

    The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
    A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

    It's not easy being Green

    After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
    Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

    Gorillas nearly missed

    BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
    Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

    The Downton Abbey effect

    Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
    China's wild panda numbers have increased by 17% since 2003, new census reveals

    China's wild panda numbers on the up

    New census reveals 17% since 2003