Saturday, March 19, 2005
Chaucer proves perenially frustrating
Chaucer management wrecked Friday's final results with the news they were planning a merger with rival Highway Insurance.
Chaucer reported diluted earnings per share of 11.2p versus last year's 9.5p. Market expectations were trounced and the dividend hiked, despite the ravaging effects of the Atlantic hurricane season.
But the news of a possible merger with motor insurer Highway left the market confused. The proposal suggested:
an all share offer by Chaucer for Highway on the basis of 44 Chaucer ordinary shares for every 54 Highway ordinary shares.
Highway has been a long-time poor relation of the insurance sector. Though a merger of Chaucer and Highway's motor insurance arms could bring real cost savings, mergers are all too often uniquely awkward projects to complete. Hundreds of management hours and expensive rebranding is often required and staff can regard their new owners as penny pinching stepmother figures and morale can suffer.
The probability of the merger going through now needs to be factored into the market's valuation of the shares in each company along with the price valuation Chaucer's management is placing on Highway's shares and the benefits to shareholders in the merged entity. If it is deemed Chaucer is valuing Highway too highly, Chaucer shares should fall. The question for the market is how much of the the amalgamation should current Chaucer holders be getting?
The merger announcement has left me furious. Friday's fantastic earnings news should have enthused the market into bidding Chaucer's shares to a new high. However, the chance that someone buying shares in Chaucer would be owning part of what soon could be a different company inspired overwhelming apathy and the shares were left untouched and as unloved as a cracked Barry Manilow LP at a car boot sale.
I've waited months for these results, hoping good news would be delivered and Chaucer's poor performing share price would begin the move northwards towards fair value. The Highway news has scuppered any chance of that happening soon. What a waste.
More moanings tomorrow.
The Artful Dodger
Chaucer reported diluted earnings per share of 11.2p versus last year's 9.5p. Market expectations were trounced and the dividend hiked, despite the ravaging effects of the Atlantic hurricane season.
But the news of a possible merger with motor insurer Highway left the market confused. The proposal suggested:
an all share offer by Chaucer for Highway on the basis of 44 Chaucer ordinary shares for every 54 Highway ordinary shares.
Highway has been a long-time poor relation of the insurance sector. Though a merger of Chaucer and Highway's motor insurance arms could bring real cost savings, mergers are all too often uniquely awkward projects to complete. Hundreds of management hours and expensive rebranding is often required and staff can regard their new owners as penny pinching stepmother figures and morale can suffer.
The probability of the merger going through now needs to be factored into the market's valuation of the shares in each company along with the price valuation Chaucer's management is placing on Highway's shares and the benefits to shareholders in the merged entity. If it is deemed Chaucer is valuing Highway too highly, Chaucer shares should fall. The question for the market is how much of the the amalgamation should current Chaucer holders be getting?
The merger announcement has left me furious. Friday's fantastic earnings news should have enthused the market into bidding Chaucer's shares to a new high. However, the chance that someone buying shares in Chaucer would be owning part of what soon could be a different company inspired overwhelming apathy and the shares were left untouched and as unloved as a cracked Barry Manilow LP at a car boot sale.
I've waited months for these results, hoping good news would be delivered and Chaucer's poor performing share price would begin the move northwards towards fair value. The Highway news has scuppered any chance of that happening soon. What a waste.
More moanings tomorrow.
The Artful Dodger
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