Co-op was never Lloyds contender

When two or more companies are competing in an auction to buy a third business, the investment bankers and accountants will do a forensic examination of rivals' accounts in the hope of uncovering signs of weakness.

Anthony Hilton: 'Those old doubts about whether the Co-op could afford to buy Lloyds branches turned out to be well founded.'
Anthony Hilton: 'Those old doubts about whether the Co-op could afford to buy Lloyds branches turned out to be well founded.'

Whenever any vulnerability is uncovered, it is quietly leaked to the media on the usual 'no fingerprints' basis. The idea is that the credibility of the rival as a serious owner of the sought-after asset is severely compromised. It is one of the more profitable dark arts strategies, although it can backfire.

After one high profile battle a few years ago where there the bidder was subject to an attack on its accounting policies, the Institute of Chartered Accountants launched a disciplinary action against one of its members who was named by the CEO of the bidder as the source of the information.

This was alleged to be unprofessional conduct. The hearing took place in private but I was a witness for the defence.

The relevance of this today is that for the past two years, Lloyds Bank has been trying to sell 600 branches because it has been ordered to by EU competition authorities as part of the price for receiving state aid.

In the early stages there were several potential buyers, one of which was the Co-op. The accounts of all potential buyers came under scrutiny, which the Co-op as a mutual had rarely had to endure before.

Though nothing wrong was uncovered, the forensic examination led to negative coverage that questioned whether the Co-op had the spare resources to complete on a deal of this size. However there was no firestorm, largely because of the vigour of the Co-op's PR advisers Tulchan, which countered that issues of interpretation were central to accounting and that the media needed to be careful not to be used to further another's agenda.

They dampened down the story and the Co-op emerged as the winner.

And then it all fell apart. Those old doubts about whether the Co-op could afford it turned out to be well founded. The group abruptly pulled out, its boss quit and the ratings agencies downgraded its credit.

Might it have been better to face reality 18 months ago? Surely it would.

Anthony Hilton is City commentator on London's Evening Standard

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