City & Business: City smirks politely over costly funeral bid gaffe
Sunday 14 August 1994
The error appeared in an obscure document in a little-noticed takeover bid in that hitherto sleepiest of industries, the funerals business - Service Corporation International's bid for Great Southern Group. The seemingly innocent error was the omission of a bog-standard clause in an announcement to the Stock Exchange.
It is the phrase in which the bidder, while describing its offer as a 'final bid', nevertheless reserves the right to raise it if a rival enters the fray. Any adviser worth their salt would put it in without thinking. It is utterly routine.
Yet somehow the 11-word phrase went AWOL. Many Great Southern shareholders sold on the assumption that there was no chance of a higher offer. When SCI then lifted its offer because of the emergence of a rival bidder, they understandably felt short- changed. In total they lost pounds 3.7m. Quite rightly Schroder and Linklaters, who were together responsible for drafting the document, have agreed to shoulder the cost.
Insiders at Schroder and Linklaters areshell-shocked by the error. So far there hasn't been a proper post mortem and I understand no heads will roll. The mistake was particularly galling because the full offer document - on which the rogue document was based - had been perfect. About a dozen advisers spent an entire day thrashing it out, often phrase by phrase.
These sessions are ghastly. The company brokers and PR people want the most powerful arguments. The lawyers urge caution and want to be totally unambiguous. The company just wants to win. The debate is endless. According to one practitioner, 'it is document production by torture.'
Alas, it was left to less experienced staff to draft the Stock Exchange announcement. This was considered elementary, merely the cobbling together of the germane parts of the offer document. And it was then, in the small hours, that the mistake was made.
Rival City professionals, while savouring the schadenfreude, admit to a touch of the there-but-for-the-grace-of- Gods. Every adviser on a takeover goes in fear of a mistake creeping in to the reams of documentation. One senior adviser told me last week he dared not glance at documents after publication for fear of coming across a howler when it was too late to do anything about it.
It's a surprise there aren't more drafting and technical errors. I can only recall a handful. Barclays Merchant Bank famously miscalculated a net assets per share figure when floating Tiphook via an offer-for-sale in 1985. The entire documentation and advertising had to be pulled and re-issued. More recently Allen & Overy, the lawyers, were sacked by Queens Moat Houses, the hotels group, after failing to advise preference shareholders about an annual general meeting.
Will the episode do lasting damage to Schroder and Linklaters? Certainly their rivals will make capital of it. One merchant banker tells me: 'When we're pitching for business against Schroder in future, we'll go out of our way to gently remind the client how they fouled up.'
Till last week both firms were riding high. Schroder was still basking in the glory of its triumphant defence of Lasmo against Enterprise. And its scheme to enable Emap to take over Transworld Communications was ingenious - not so much bending the radio industry ownership rules as smashing them to pieces.
Linklaters, too, had been having a thumping good year. Probably only Slaughter & May is as well regarded for corporate work. Legal Business magazine reckons profits per partner are up on the pounds 322,000 earned in 1992/93. It is Linklaters that notoriously trousered pounds 5.7m in fees for advising the Government on rail privatisation - more than enough to have resolved the signalmen's dispute.
Both firms will weather this storm. But good reputations are easily lost. Clients paying pounds 300 an hour per lawyer or banker expect faultless work. It takes more than one banana skin to give a firm a reputation for being accident- prone. But not many more.
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