Outlook: Allied adopts a flat earth approach

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WHAT IS it about the Allied Domecq board that it continues to recommend an offer which is inferior to the alternative? And what is it about Whitbread that it persists in a quest which is on the very edge of being value destructive to its own shareholders? The two have become like supporters of the flat earth theory - determined to stick to their view of the world long after everyone else has come to the opposite opinion and however much the evidence seems to stack against them.

In arriving at this conclusion, they have been advised by a whole army of lawyers, investment bankers and general hangers on. A veritable fortune it has cost them too. OK, so maybe the earth is round after all, Sir Christopher Hogg, chairman of Allied Domecq, seems to have been conceding for the last week in the face of Punch's plainly superior offering, but you are surely not going to try and tell me the Sun goes round the Earth, are you? I'm still for Whitbread, he says.

To be fair on Sir Christopher and his platoon of highly paid advisers, the two offers now appear so close that choosing between them was never going to be easy. If it's a question of you pays your money and you takes your choice, the devil-you-know approach seems as good as any. The Whitbread deal has been under discussion for more than five months, while the upstart Punch has come queue-barging in only at the last moment. Furthermore, Punch's offer is more complicated than Whitbread's and shareholders are going to have to wait until October to get their money.

But it's not really like that. In order to make Whitbread's offer look the same in value terms as Punch's, Allied has had to take the numbers, put them through the mincer twice, perform a couple of back flips and then effect a miraculous Houdini-like escape from a submerged iron cask. If this is the game we are now playing, shareholders are as entitled to rely on Punch's maths as Allied's and these paint a very different picture - clear water between the two of at least pounds 118m. This is hardly you pays your money and you takes your choice territory.

There is still some possibility that Punch will come back with an even higher bid to seal the deal, or will at least be able to restructure its offer in a way that Allied shareholders are entirely comfortable with. But if Punch's Hugh Osmond doesn't, and shareholders are forced to choose between the rival bids as they presently stand, two factors should persuade them against Whitbread, even if they accept the questionable arithmetic used by the Allied board to support the Whitbread case.

First, Whitbread said it believed there were no substantive regulatory issues that needed to be addressed, only to discover that there were. Then it said it had no intention of raising its bid, only to do so within days. For any management so comprehensively to have misled investors should automatically disqualify it, all other things being equal, from serious consideration.

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