Back predators, ScotAm advises

A leading investing institution claims to have found a solid statistical justification for what others prefer to see as the City's short-termism. If accepted, the findings will put further pressure on sleepy managements in what is expected to be another bumper year for acquisitions.

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.

PROMOTED VIDEO
News
ebookA unique anthology of reporting and analysis of a crucial period of history
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.

iJobs Job Widget
iJobs Money & Business

BA/PM,EMIR/Dodd-Frank,London,£450-650P/D

£450 - £650 per day + competitive: Orgtel: My client, a leading bank, is curre...

Senior Analyst - ALM Data - Banking - Halifax

£350 - £400 per day + competitive: Orgtel: Senior Analyst, ALM Data, Halifax, ...

Java developer - Banking - London - Up to £600/day

£500 - £600 per day: Orgtel: Java developer - Banking - London - Up to £600/d...

Liquidity Reporting-Basel III-LCR-Bank-£400/day

£400 per day + competitive: Orgtel: Liquidity Reporting - Basel III - LCR - Ba...

Day In a Page

Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain
Ebola epidemic: Plagued by fear

Ebola epidemic: Plagued by fear

How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

From 'Parks and Recreation' to 'Guardians of the Galaxy'

He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star
How live cinema screenings can boost arts audiences

How live cinema screenings can boost arts audiences

Broadcasting plays and exhibitions to cinemas is a sure-fire box office smash
Shipping container hotels: Pop-up hotels filling a niche

Pop-up hotels filling a niche

Spending the night in a shipping container doesn't sound appealing, but these mobile crash pads are popping up at the summer's biggest events
Native American headdresses are not fashion accessories

Feather dust-up

A Canadian festival has banned Native American headwear. Haven't we been here before?
Boris Johnson's war on diesel

Boris Johnson's war on diesel

11m cars here run on diesel. It's seen as a greener alternative to unleaded petrol. So why is London's mayor on a crusade against the black pump?
5 best waterproof cameras

Splash and flash: 5 best waterproof cameras

Don't let water stop you taking snaps with one of these machines that will take you from the sand to meters deep
Louis van Gaal interview: Manchester United manager discusses tactics and rebuilding after the David Moyes era

Louis van Gaal interview

Manchester United manager discusses tactics and rebuilding after the David Moyes era
Will Gore: The goodwill shown by fans towards Alastair Cook will evaporate rapidly if India win the series

Will Gore: Outside Edge

The goodwill shown by fans towards Alastair Cook will evaporate rapidly if India win the series
The children were playing in the street with toy guns. The air strikes were tragically real

The air strikes were tragically real

The children were playing in the street with toy guns
Boozy, ignorant, intolerant, but very polite – The British, as others see us

Britain as others see us

Boozy, ignorant, intolerant, but very polite
How did our legends really begin?

How did our legends really begin?

Applying the theory of evolution to the world's many mythologies
Watch out: Lambrusco is back on the menu

Lambrusco is back on the menu

Naff Seventies corner-shop staple is this year's Aperol Spritz