Outlook: How to overpay in a takeover bid

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The Independent Online
NOT MANY contested or competing takeover bids are made these days. According to the Takeover Panel, they have fallen to just one in five of total merger activity. In the US this shift is even more pronounced; 1980s-style contested bids are virtually unknown.

The reasons for this are well rehearsed. In a contested or competing takeover, the successful bidder nearly always ends up overpaying. The chances of that happening today are greater than ever, as companies are generally more efficiently run than they were in the 1980s heyday of the contested bid, and as a consequence there's not much fat left to pay for the premium. If there is to be a recession, or the world is heading for a big economic slowdown, then the consequences of overpaying could be quite serious.

So hardly anyone's doing them. Instead, the fashion is for no-premium, consolidating mergers. Despite the now infamous clash of egos that caused the Glaxo/SmithKline merger to come apart at the seams, an awful lot of these sorts of merger are reaching the altar.

All of which makes the battle for control of Dennis, an unglamorous Coventry- based manufacturer of bus and fire engine chassis, an intriguing little affair. For the laconic John Simpson, chief executive of Mayflower, Dennis marks a second attempt in less than a year at the big deal - his first, a mooted bid for Vickers, stumbled before the might of Volkswagen and BMW.

This time he made it off the starting blocks only to be outbid by Henlys which, among other things, makes coach bodies. On the face of it the Henlys bid seems to make more sense commercially, since by putting its bodies together with Dennis's chassis, it can offer the whole charabanc, as it were.

Whether this justifies the heady price it is now bidding is another matter. Certainly there's sufficient doubt in the City to send Henlys shares into a spin, undermining the value of its cash and stock offer for Dennis in the process. Without the assistance of a share support operation from Volvo, which is buying up to 10 per cent of Henlys in the market, prospects for the bid might look bleak.

Volvo's interest is a suspect one. It would not be allowed to buy Dennis directly, as the two combined would have the bulk of the UK chassis market. So it seems to have opted for the strategy of backing one of the bidders instead. The emergence of a share support operation, albeit a legal and disclosed one, makes it all seem quite like the 1980s again. Even if he could afford it, Mr Simpson would be an idiot to raise his bid. The waters are muddy enough, and Henlys is already overpaying.