Outlook: Wolves/Marston

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The Independent Online
FOR DAVID THOMPSON, managing director of Wolverhampton & Dudley Breweries, this has been a hair-raising couple of weeks. When he launched his bid for Marston, Thompson & Evershed last November, he was aware of the possibility that Marstons would turn round and bid for him, but he didn't think it likely. Then all of a sudden, he was faced with the possibility of losing his company, which has been in the family for generations. It would be like Rocco losing Forte, only on a smaller scale.

By last night, however, he would have been sleeping a little bit easier. The battle is far from over, but the stock market was strongly indicating that Wolves would win after raising its bid to pounds 289m. The new Wolves bid values each Marston share at 304.5p on last night's closing prices, or not significantly more than the market price of 286.5p. By contrast the Marstons bid for Wolves is valued at 573p a share, a whopping great premium to the Wolves market price of 425p. There is no doubt which bid the market finds more credible.

The market is not always right about these things, but even so, the cards now look to be heavily stacked against the makers of Pedigree bitter. Marstons cannot realistically raise its own offer without undermining its own share price, which in turn may make its own shareholders more prone to accept the Wolves bid.

Obviously, if you are a shareholder in only one of these companies, the choice is an easy one - you either sell in the market or accept the bid. This is because, the combined value of the group can only be a certain defined amount. The bidder must set his offer at a premium to succeed, so the biddee always ends up with a disproportionately large share of the cake.

For this reason, it makes no sense for Marstons shareholders to reject the bid and accept their board's defence, since inevitably they would end up overpaying for Wolves. The same arguments apply the other way round.

But as if things were not already confusing enough, the holders of 55 per cent of Marstons own 28 per cent of Wolves and visa versa. For these overlapping shareholders, the calculation has to be which bid in aggregate offers them more value.

This is where it begins to get really complicated, since it involves factoring in the amount of debt in each bid, as well as evaluating the claimed value creation of each offer. But initial calculations in the City seem to be coming down in favour of Wolves.

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