According to Douglas Ferrans, chief executive of Scottish Amicable Investment Managers, bid targets that slip out of the grasp of corporate predators tend to underperform in subsequent years so the best approach in the average bid is to accept the offer on the table and reinvest the proceeds elsewhere in the market.
According to ScotAm's analysis of large failed bids over the past 10 years, such companies underperformed the market by 12 per cent on average in the year after escaping, by 21 per cent over two years and 25 per cent in the three years following the failure of the takeover bid. Partly that reflects the unwinding of a sometimes sizeable bid premium, but the fund manager believes the companies' poor fundamental performance is also to blame.
Some of the bid targets to have left shareholders rueing their loyalty include Standard Chartered, which fell 50 per cent relative to the market following Lloyds unsuccessful tilt in 1986 and Storehouse which underperformed by 66 per cent in the three years following Benlox's failed bid the following year.
More recently, BAT lost half its relative value in the year following Hoylake's spurned offer in 1990 and failed to make up any ground in the next two years. First Choice, which fought off the unwanted attentions of Airtours three years ago, underperformed by 26 per cent in the two years following the bid.
Douglas Ferrans said of the findings: "In defending themselves, companies appear unable to deliver the value promised. In aggregate, the relative share price underperformance of companies which have survived takeover bids is of a scale which would be difficult for any fund manager to make up."
He added that institutional investors were becoming increasingly reluctant to back incumbent management as they were forced to deliver short- term investment performance for their clients. That thinking had led to institutions being unwilling to give Sir Rocco Forte the benefit of the doubt in his unsuccessful defence against Granada's recent pounds 3.9bn takeover.
The survey did, however, point to some dramatic exceptions to prove the rule.
After Dixons escaped from Kingfisher in 1990, its shares soared by 64 per cent relative to the market in two years. The following year Racal performed almost as well after fighting off Williams.