City explained - the 86-day danger zone
With the imminent end of the fiscal year and the release of annual tax reports from public companies, hostile takeover season is declared open by advisory firms across the City who will be creating pitchbooks for their clients on why company X is right for the taking. For simplicity's sake, public companies aim to place their fiscal year end close to the tax year end in April. PLCs are, unlike other companies, legally obliged to make their accounts freely available to the public for the purposes of fair share valuation.
Recently, the Cass business school, part of City University, in conjunction with Deloitte, published a study that determined the major factors in increasing a company's risk from a hostile takeover bid. It was revealed that a company is most in jeopardy within 86 days of submitting its accounts. Other key characteristics are a low turnover growth; low employee growth; the board owns fewer shares in the company; and a low ration of tangible assets over market capitalization.
The study identified BOC as one of the most vulnerable companies in the UK, which has already had to fend a hostile bid from a German rival. Companies safe from the grasp of the economies of scale are those highly dependent on skilled workers who could leave in the wake of an unwanted takeover. The information is somewhat revolutionary since one of the most traditional risk factors, the length of time a Chief Executive has been in office, was shown to be negligible.
Mid-sized companies are urged to have an awareness of the possibility of a hostile offer, particularly in a climate of global consolidation. Europe is famously resistant of foreign acquisitions, supported by staunch protectionist governments, particularly in France. The trend is being broken, with the acquisition of one of Italy's most popular commercial banks by ABN Amro. This will pave the way for similar acquisitions throughout Europe where commercial banking is heavily fragmented. Unless mid-sized European companies learn to accept they must merge, they will be subjected to hostile bids from outside Europe.
