The two companies announced a nil premium merger the other week. The skill in presenting such deals to the press and the market lies in clearly quantifying the benefits and stressing how quickly these will become available to the combined company, while downplaying or ignoring the negatives. The object is to get enough ‘good news’ into the market to push up the share prices of the parties concerned. This makes the shareholders happy and inclined to accept the deal.
Second, it makes it harder and more costly for a rival company to come in and break up the party. It helps, therefore, to keep the deal secret before the announcement, because that allows the protagonists to get their story out while the sceptics are still putting their thoughts together.
Unfortunately, the Resolution-Friends Provident merger never got that clear run. The story leaked a few days early, which alerted the rest of the industry, so when the formal announcement was made a couple of days later the competition was also prepared and proactive. The result was that while comment on the deal paid due deference to the arguments put across by its sponsors, the downside was also prominent.
All the stories were laced with a scepticism that painted both merger parties in a poor light. There were doubts about whether Friends Provident shareholders should accept a takeover at the current market price because they might get a better deal elsewhere. There were lists of potential rival suitors.
There were suggestions that the combination of the two companies owed more to the fact that both had lost their way than to any positive vision of the future. There were doubts about the management of the new entity and whether Resolution’s hard-driving Clive Cowdery would be able to be a hands-off chairman. The result, predictably enough, was that the shares fell rather than rose.
This created an opportunity for Resolution’s main rival, Pearl, to add to its share stake in Resolution and announce publicly that it was doubtful about the deal. Resolution is now vulnerable to a bid itself – and its merger is dead in the water.