March 24: Aviva fumbles Pru bid

Listen to this article

00:00
00:00

Aviva has withdrawn its proposed £17bn bid for Prudential. Neither Aviva nor its advisers – Morgan Stanley, JP Morgan Cazenove and ABN Amro Hoare Govett – come out looking very clever. Aviva blames Pru’s refusal to enter talks for its decision. But Aviva and its team made three mistakes. Most significantly, they pitched their proposed offer at the wrong level: 700p a share was both too low to represent a significant takeover premium and too high for the deal to be presented as a merger of equals. Second, Aviva did little to woo Prudential’s management – it was made explicit from the outset that Aviva’s chief executive Richard Harvey would run the combined group and it was implicit that his chairman, Lord Sharman, would replace Prudential’s Sir David Clementi. Third, taking just four days between declaring an intention to consult shareholders and throwing in the towel makes Aviva look, at best, disorganised.

Having in effect admitted that its organic growth opportunities are limited, Aviva and its management are diminished by this episode, even if the group is not necessarily immediately vulnerable to takeover itself. Expect it to make an extra special effort to produce sparkling new business figures next month. Prudential does not come out of this unscathed either. Having firmly refused to engage with Aviva, it must now demonstrate that it is worth significantly more than 700p a share, especially to those shareholders who were clearly tempted by Aviva’s plan. Pru shares closed at 681p tonight. Aviva is barred from having another go at Pru for six months. But if Mark Tucker, its chief executive, can’t demonstrate he was right to stand as firm as he did, a deal with Aviva could be back on the cards.

Surely there’s a letter missing from GCap’s name? The radio group which owns London’s Capital Radio and XFM today pulled its chaotic sale of nine regional stations after buyers refused to offer more than about half the amount GCap had in mind. They even tried to break up the portfolio but that didn’t work either. Shareholders can forget about the special dividend that was promised. And to GCap it all, the group said annual sales were down 13 per cent. The shares are only off about 3 per cent but this must be because enough people out there believe a bidder will put the group out of its misery. Private equity firms have been sniffing. (We have a package in the works about M&A vehicles in the media sector, which looks rather germane all of a sudden.)

It took him seven months, but Richard Cousins, former chief executive of BPB, has finally agreed to become chief executive of Compass Group, the contract caterer with its plate full of problems. You can’t blame him for taking his time over the decision: even after five years of running a plasterboard company, sorting out Compass can’t have sounded much fun. In fact, anyone who has looked at the group closely knows there is a lot that Cousins and his chairman-to-be, Sir Roy Gardner, can do quite fast to get it into much leaner shape. My bet is we’ll start seeing meaningful improvements within a year. The stock is up 2½ per cent.

Babcock International shares are up 15 per cent in reaction to last night’s news that BAE Systems and VT Group are considering a joint bid for the defence and support services group. News of that potential bid came out after the market closed last night so this is the first opportunity the market has had to react. Structuring and valuing this bid seems fraught with difficulty, not least because I suspect VT would prefer to own Babcock’s support services operations and to pull out of shipbuilding altogether but can’t because the MoD won’t let them. VT’s shares, up 3½ per cent, have reacted much better than BAE’s, which are flat.

We’ll keep looking at the impact of the Budget changes to the Reits rules. The Telegraph says Tesco is looking at putting its property into such a structure. They, and many other retailers, probably are but we don’t get the feeling they have made any decisions yet. Tesco shares are up just over 3 per cent.

The other things we continue to follow, of course, are the battle for control of the London Stock Exchange and the fascinating private equity-led assault on ITV.

To make and read a comment online, click here

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.