David Prosser: Mouchel persuades its shareholders tolook to the long term

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The Independent Online

Outlook One of the most frequently heard criticisms of institutional shareholders in large British companies is that they are far too prone to short-termism: that they frequently accept the offer of a quick buck for their holdings, rather than allowing managements to build for the long term.

Well, let no one accuse the leading shareholders in Mouchel, the outsourcing company, of a lack of patience. Despite having seen the value of their investments in the business tank in recent months, they've just given Mouchel's management the go-ahead to say no to not one but two takeover offers that might have given them an out at a more respectable price. Predictably, when the company announced its intention to retain its independence yesterday, the shares took a pasting once again.

Does Andy Brough, the very well-regarded Schroders fund manager who is one of the most prominent names on the Mouchel share register, wish now that he hadn't held out for such a high price from VT Group, a third suitor, a year ago? Maybe so – VT's offer went as high as 294p a share, which looks rich compared to today's valuation of 99p – but it is to shareholders' credit that they are now sticking with the business despite the damage it is doing their investment performance statistics.

It was right to reject both offers yesterday. Costain's offer, the higher of the two, came with all sorts of uncertainties – not least because the combined company would have fallen foul of rules limiting the number of contracts that the Highways Agency is allowed to offer any one group. Interserve, meanwhile, reduced its offer to a price that simply looked opportunistic.

That Interserve's lower valuation also reflects the findings of a due diligence exercise it has been conducting in recent weeks has already begun to unnerve some investors. But we have known for some months now that Mouchel is facing difficult trading conditions, a worry reinforced by the update it published yesterday. Part of the problem, moreover, has been the uncertainty surrounding its future, which has weighed on the minds of potential customers, adding to the challenges posed by lower Government spending.

The good news for the company is that it successfully completed its most pressing refinancing in January (it was reports of additional worries about this last autumn that first triggered a collapse in Mouchel's shares). A large repayment is due at the end of next year, but the company remains profitable and is in no danger of breaching banking covenants.

As you were, then. Mouchel traded well prior to the austerity drive and has every chance of doing so again as an independent business. No doubt there is a price at which investors would sell, but for now it makes a change to see them sticking with the company.

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