City Investors Take Dim View of Megamergers' Value

Dec 17, 2012, 05:00 ET from Capital Spreads

LONDON, December 17, 2012 /PRNewswire/ --

  • Three quarters of leading fund managers believe that megamergers such as Glencore / Xtrata offer little or no value to the shareholder
  • Investment bankers valuations blamed for lacklustre IPO market
  • Three quarters of respondents believe that Direct Line's IPO has been, and will continue to be, a success

New research from leading spread betting and CFD provider, Capital Spreads, has found that City investors overwhelmingly believe that megamergers similar to the proposed Glencore / Xtrata merger offer little value to the shareholder.

According to Capital Spreads' Capital Perspectives Survey conducted in November 2012, which polled fund managers from 200 of the City's major investment houses, with collective assets under management in excess of $10 trillion, almost three quarters (72%) of fund managers polled believe that megamergers offer little or no value to the shareholder. This view appears to be supported not only by recalcitrant Glencore and Xstrata stakeholders but also by the UK, French and German Governments, who contrived to block the other great megamerger of the last financial quarter, the proposed BAE /EADS merger.

With the recent high profile IPOs of Facebook, Manchester United and Japan Airlines having all been received poorly by investors, there is no question that the market remains in a trough. Investors appear to lay a significant portion of blame at the door of the investment bankers with 70% stating that investment bankers' unrealistic valuations have played a role in the lacklustre IPO market. Indeed, over a third (36%) stated that investment bankers' valuations have been "a major cause of the IPO market's poor performance."

Despite their bearish stance on megamergers and the IPO market, investors appear to believe that Direct Line is an attractive enough investment for its IPO, and subsequent flotations, to be successful and to be a flotation offering value to shareholders of both the new insurance company and its owner, RBS. Three quarters of respondents believe that Direct Line's IPO will be a success, almost a fifth (18%) of whom believing it will be a major success.

Angus Campbell, Head of Market Analysis at Capital Spreads, said: "London simply hasn't been seeing the sort of activity it once did in the nineties and early noughties when corporate takeovers and mergers were a regular occurrence.  2012 has been a very tough year in general for most parts of financial services especially where equities and other volumes are concerned, so when the rare sight of any M & A does come along the dealmakers pounce at the chance to squeeze everything they can out of it.  It looks like the feeling from investors is that this attitude from the banking community is to the detriment of shareholders and are skeptical that they are getting the best out of such megamergers.

In terms of IPOs there is also a clear air of discontent with the valuations that are being placed on new issues which makes out any exciting new opportunities to be less attractive nowadays."

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SOURCE Capital Spreads