Standard Life deals blow to Farnell deal

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City Editor

Standard Life dealt an unexpected blow to Farnell Electronics' pounds 1.85bn expansion plans yesterday, stating publicly that it intended to vote its 2 per cent stake against a US acquisition that would more than double Farnell's size and leave it on the fringes of the FT-SE 100 index.

The public declaration, which came a week before shareholders are due to vote on the proposed acquisition of the electronic component distributor Premier, is an unusual departure from the secrecy with which the big investing institutions normally surround their voting intentions.

It is the latest twist in a deal that stunned the market two weeks ago, when a low-profile distribution company that few outside the City had even heard of threatened to join the ranks of Britain's largest businesses.

Farnell's shares lost 10 per cent of their value on the announcement as investors worried about the price the company was paying, the debt it was taking on to do the deal and the fact that American acquisitions have been a graveyard for many ambitious British businesses.

Graham Wood, head of UK equities at Standard Life, said: "As shareholders of Farnell, we cannot stand idly by and watch the company spend $2.8bn on Premier. It's too high a price to pay and we can see no financial justification for shareholders to support this deal. Obviously we would like to see the resolution rejected."

Although Standard Life's holding is not material in itself, by going public with a week to go before the vote, the move is being seen as an attempt to whip up support for a no vote. Farnell needs three-quarters of the votes cast to be in favour for the deal to proceed.

With similar ballots often attracting votes from as few as 40 per cent of a company's shareholders, Standard Life could have its way with the support of only 10 per cent of Farnell's equity base.

Howard Poulson, who spent much of last week in the US talking to Premier's employees, said yesterday: "It would be a great shame if the deal was voted down. It is very clear that the overwhelming majority of shareholders are in favour and understand the industrial logic of the deal."

Scottish Widows increased its stake to 6 per cent yesterday and said it planned to vote in favour. Support for the company also appeared to come from Mercury Asset Management, which yesterday increased its stake to 13 per cent with a purchase of about 1 per cent of the shares. Other institutions privately said that while they had some reservations about the size of the deal they would probably support it.

One senior fund manager said: "What shareholders have to bear in mind is what will happen to Farnell's management if the deal is voted down. They would have to resign. Is that really what shareholders want?"