More explanations called for in Refuge deal
Wednesday 21 August 1996
The stock market is not so sure. Perpetual's case is a strong one and Refuge's explanations not wholly convincing. Perpetual has four basic problems with the terms. The first is that Refuge should have held out for a higher valuation of its "orphan estate" - the life fund assets which the DTI has agreed should belong to shareholders - and that in any case, the estate has been inadequately represented in the terms of the merger. The same is true of the company's pension fund surplus, Perpetual claims; a much higher proportion of the surplus should have been factored into the deal.
The third contention is that Refuge has steamed ahead with the deal without establishing or stating what the cost benefits of the transaction are or how they will be shared between policyholders and shareholders. Finally, the dividend is unfair, claims Perpetual. For United, the forecast dividend amounts to the whole of distributable profits. For Refuge, it is only two-thirds. On the face of it, then, Refuge shareholders should be getting a majority of the combined group, not the minority they are served up with.
Refuge and its advisers, Phoenix Securities, have answers to all these points, but they are not as robust as you might expect. Moreover, they are more in the nature of excuses than convincing explanations. On the size of the orphan estate, for instance, they say that this is the maximum the DTI would allow, and that the DTI's word is final. On the other hand, Perpetual may be right to claim that a more vigorous, determined and less hasty approach might have resulted in a better deal. The United Friendly surplus was valued at only pounds 275m when the DTI first pronounced on it some while back. Eventually it was negotiated up to pounds 500m.
Then there is the unexplained fact that the estate was discounted by 20 per cent for the purposes of valuing Refuge. Why? Even more perplexing is Refuge's refusal to disclose what size of pension fund surplus has been factored into the valuation, or how this was established. This might reasonably be thought of as a quite insulting omission, but there's worse. It is the old fall-back position that these are complex businesses, hard for the likes of you and me to understand. Dear oh dear.
There is a real possibility that Refuge and its advisers have been caught napping here, that it has taken Perpetual to point it out to them, and that they are now too embarrassed to admit it. At the very least, there has been a highly complacent failure to explain adequately either the nature of the methodology or processes used in arriving at the valuations. As a result, Refuge and its advisers risk losing the deal.
- 1 Replica Back to the Future Hoverboard released
- 2 Katie Hopkins attacked me on Twitter — so I reported her to the police for inciting racial hatred
- 3 Brixton squat flats now costing up to £3k per month show how out of control rent is in London
- 4 Gamers confess the worst things they've done in The Sims
Costa Concordia: Shipment of Mob drugs was hidden aboard cruise liner when it hit rocks off Italian coast, investigators say
Brixton squat flats now costing up to £3k per month show how out of control rent is in London
Iran nuclear talks: Prospect of deal with Iran pushes Saudi Arabia and Israel into an unlikely alliance
A new (old) cure for MRSA? Revolting recipe from the Dark Ages may be key to defeat infection
Jeremy Clarkson 'could be given minder' ahead of a potential Top Gear return
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
Street preacher quoting from the Bible fined for calling homosexuality an 'abomination'
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
Woman filmed launching racist tirade against men on the Tube for speaking in 'own lingo'
The West has it totally wrong on Lee Kuan Yew
David Cameron calls Labour 'hopeless, sneering socialists' while announcing 7-day NHS plans
iJobs Money & Business
£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...
£45,000 - £55,000: Loren Hughes: Are you looking for a new opportunity that wi...
Circa £45,000-£50,000 + benefits: Sheridan Maine: Are you a newly qualified ac...
£150 - £190 Daily Rate: Sheridan Maine: One of London's leading water supplier...