Value.able: Thanks for nothing
The track record of acquisitions in Australia is nothing short of appalling. To the detriment of employees and shareholders, hundreds of billions of dollars have been lost. Yet managers continue to be remunerated for sub-standard returns. Read Roger’s article at www.eurekareport.com.au.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Phil Crossan
:
You could save a lot of money if you sell a company as soon as they announce a significant purchase of another above intrinsic value.
Andrew
:
I agree Roger, i have been working on a an analysis of ROE for 49 out of the ASX 50 (westfield retail trust ignored due to only 1 yr of results).
Two particular companys show up interesting information.
These two are ASX, WES
What do these two have in common, a dramatic drop in Return on Equity happening the year of a major acquisition. Wesfarmers being probably the most dramatic.
I know these two examples have been covered fairly well by our community and our book, but still they are great reminders as to the risks to shareholders wealth that acqusitions can be.
I still like Buffets idea of having investment banks compete over acqusitions, one is to argue for the purchase and one against the purchase.
Roger Montgomery
:
Thanks Andrew. An even more interesting study is the 2 year price performance of companies who make an acquisition that is bigger than….Ahh but I get ahead of myself.
PeterB
:
An interesting alternative to the investment Bank acquisition follows:
A binding agreement is set up between two Investment Banks (Bank A, and Bank B) who are potential acquirers. The agreement states that Investment Bank A shall determine the acquisition price, and Investment Bank B shall choose the buyer based on the acquisition price chosen by Investment Bank A. They toss a coin to determine who will be Bank A
PeterB
Roger Montgomery
:
Sounds more like a divorce.