Backing hostile bids 'is wise'

FORTE'S investors did the right thing in ditching Sir Rocco for Granada's Gerry Robinson, if recent stockmarket history is any guide. For latest research suggests shareholders are much better off submitting to a hostile bid than giving existing management the benefit of the doubt.

An analysis of the ones that got away - 15 companies which have successfully fought off a takeover approach of at least pounds 250m in the past 10 years - shows that on average their share prices have subsequently underperformed the stockmarket by up to 25 per cent. This consideration could be the swing factor in a close-run bid, Scottish Amicable argues.

Among the worst offenders are tobacco-to-insurance giant BAT, whose shares trailed the stockmarket by 46 per cent in the three years following Sir James Goldsmith's failed bid, and Standard Chartered, down 50 per cent against the market in the same period after escaping the clutches of Lloyds Bank.

The findings are in a report to be published tomorrow. It suggests that far from sharpening up their act, companies are unable to deliver the promises of increased shareholder value contained in every bid defence document.

"When evaluating bids, shareholders would do well to put less emphasis on rhetoric and more on facts," said Douglas Ferrans, Scottish Amicable's chief executive. "Our analysis suggests that backing takeover targets in contested bids is not good for the financial well-being of our clients and pension fund customers."

Completed takeovers last year reached a record pounds 36.2bn. Scottish Amicable forecasts a continued high level of bid activity in the stockmarket ahead of the general election due to strong company balance sheets and the lowest borrowing costs for 30 years. Companies most vulnerable to takeover are those with high dividend yields, low cover and an underperforming share price, it says.