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.

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Arts and Entertainment
Carrie Hope Fletcher
booksFirst video bloggers conquered YouTube. Now they want us to buy their books
News
Clare Balding
peopleClare Balding on how women's football is shaking up sport
Sport
Lewis Hamtilon and pole-sitter Nico Rosberg
SportShould F1's most aggressive driver curb his instincts in title decider?
Arts and Entertainment
Damien Hirst
artCoalition's anti-culture policy and cuts in local authority spending to blame, says academic
Sport
premier leagueMatch report: Arsenal 1 Man United 2
Arts and Entertainment
Kirk Cameron is begging his Facebook fans to give him positive reviews
film
News
i100
Arts and Entertainment
Jason goes on a special mission for the queen
tvReview: Everyone loves a CGI Cyclops and the BBC's Saturday night charmer is getting epic
Sport
Jonny May scores for England
rugby unionEngland 28 Samoa 9: Wing scores twice to help England record their first win in six
Life and Style
fashionThe Christmas jumper is in fashion, but should you wear your religion on your sleeve?
Sport
Tony Bellew (left) and Nathan Cleverly clash at the Echo Arena in Liverpool
boxingLate surge sees Liverpudlian move into world title contention
Voices
Neil Findlay
voicesThe vilification of the potential Scottish Labour leader Neil Findlay shows how one-note politics is today, says DJ Taylor
Finacial products from our partners
Property search
Sarah Bibby and Robert Allinson, with their children Charlotte and Ethan, confronted the ‘difficult’ questions’ posed by making a will

Simon Read: There may be trouble ahead for cohabiting couples who don’t make a will

Your children have it all, your partner gets nothing

Halfords is gearing up for Christmas

Bargain Hunter: Find the deals that have real value beneath the Black Friday hype

Halfords is gearing up for Christmas

Fields of dreams: venture capital trusts help young companies to grow, potentially delivering big returns for investors

Mark Dampier: You take a chance but VCTs have sorted the wheat from the chaff

Fields of dreams: venture capital trusts help young companies to grow, potentially delivering big returns for investors 

The FCA has imposed £1.1bn in fines on five banks over forex trading practices

Simon Read: Catch 22 for borrowers who are turned down by banks

There are many reasons for people to turn to high-cost credit, but being turned down by their banks for a loan is one

The battle between the banks to attract more current account customers moved up a level this week when Yorkshire Bank (and Clydesdale Bank) launched a market- leading £150 switching incentive.

Money Insider: Would £150 make you switch banks?

The £150 incentive from Yorkshire and Clydesdale runs from now until 28 February next year, but you must use the official Current Account Switching Service (CASS) and close your existing account to qualify

The short slope that takes women all the way down to living on the streets

For the rising number of homeless women, the struggle is compounded by health problems and by losing their children

If you’ve got a card in your wallet that charges a low standard interest rate, there’s less financial impact if you can’t repay your full statement balance.

Money Insider: Save money with the right credit card

Research from Sainsbury’s Bank Credit Cards this week revealed that 15 per cent of people making a large purchase on their plastic didn’t use one with 0 per cent interest on purchases

Last week was hangover time, when Stock Spirits, a vodka producer, distilled a profit warning that sent its shares crashing more than 25 per cent. (image: Rex Features)

No Pain No Gain: Vodka causes a hangover as shares in Stock Spirits slump

Last week was hangover time, when Stock Spirits, a vodka producer, distilled a profit warning that sent its shares crashing more than 25 per cent

Investment melting pot: the price of gold may have fallen but Artemis Strategic Assets believes its value cannot be debased

Mark Dampier: Strong returns can be found if you go the opposite way to the crowds

Investment melting pot: the price of gold may have fallen but Artemis Strategic Assets believes its value cannot be debased

The Bank of England announced that interest rates will stay at 0.5 per cent

Simon Read: Banks can’t blame the economy for their low rates

Interest rates are currently as low as 0.1 per cent

The schemes work by using collective power to negotiate better deals with gas and electricity suppliers

Simon Read: Don’t blow a fuse with your energy supplier, just switch

The energy watchdog Ofgem has slammed Scottish Power, while Citizens Advice reports a string of complaints about it

John Lush from Hampshire got into debt with payday lenders and had the help of a debt management charity to clear the £20,000 he owed

Simon Read: The only place for debt is out in the open, don't be afraid to ask for advice

John Lush from Hampshire got into debt with payday lenders and had the help of a debt management adviser to clear the £20,000 he owed

Seven Families campaign aims to raise awareness of financial damage caused by illness or disability

The campaign is handing financial help to seven families for a year, along with support and advice in how to get their careers back on track
The 10th birthday of broadband in Britain was marked with a projection in 2010. But the infrastructure is still being rolled out

Families pay the price of superfast broadband

Bills are going up for households around the UK as providers invest in better infrastructure. Emma Lunn explains why - and what to do

How to cut the cost of car insurance: A five-step guide to getting a better deal

Premiums are on the rise again but motorists don't have to take a back seat on the price of their cover, says Rob Griffin
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

    Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

    Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

    Reach Volunteering: Charity Treasurer

    Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

    SThree: Trainee Recruitment Consultant - Soho

    £20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

    Ampersand Consulting LLP: Markit EDM (CADIS) Developer

    £50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

    Day In a Page

    Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

    Kenyans still waiting for justice over Mau Mau uprising

    Thousands join class action over Britain's role in the emergency
    Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

    The last Christians in Iraq

    After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
    Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

    Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

    Britain braced for Black Friday
    Bill Cosby's persona goes from America's dad to date-rape drugs

    From America's dad to date-rape drugs

    Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
    Clare Balding: 'Women's sport is kicking off at last'

    Clare Balding: 'Women's sport is kicking off at last'

    As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
    Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

    Oh come, all ye multi-faithful

    The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
    Dr Charles Heatley: The GP off to do battle in the war against Ebola

    The GP off to do battle in the war against Ebola

    Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
    Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

    Flogging vlogging

    First video bloggers conquered YouTube. Now they want us to buy their books
    Saturday Night Live vs The Daily Show: US channels wage comedy star wars

    Saturday Night Live vs The Daily Show

    US channels wage comedy star wars
    When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

    When is a wine made in Piedmont not a Piemonte wine?

    When EU rules make Italian vineyards invisible
    Look what's mushrooming now! Meat-free recipes and food scandals help one growing sector

    Look what's mushrooming now!

    Meat-free recipes and food scandals help one growing sector
    Neil Findlay is more a pink shrimp than a red firebrand

    More a pink shrimp than a red firebrand

    The vilification of the potential Scottish Labour leader Neil Findlay shows how one-note politics is today, says DJ Taylor
    Bill Granger recipes: Tenderstem broccoli omelette; Fried eggs with Mexican-style tomato and chilli sauce; Pan-fried cavolo nero with soft-boiled egg

    Oeuf quake

    Bill Granger's cracking egg recipes
    Terry Venables: Wayne Rooney is roaring again and the world knows that England are back

    Terry Venables column

    Wayne Rooney is roaring again and the world knows that England are back
    Michael Calvin: Abject leadership is allowing football’s age-old sores to fester

    Abject leadership is allowing football’s age-old sores to fester

    Those at the top are allowing the same issues to go unchallenged, says Michael Calvin