Hate Being Right

About a year and a half ago, The Merger Verger commented on an acquisition by a company out of Australia, Ansell Limited (ASX: ANN). In the announcement of the deal CEO Magnus Nicolin was quoted as saying the following:

The overall integration process will be a gradual one as we take time to get to know the Comasec business.

Bend Over, Mon Petit Shareholder
Bend Over, Mon Petit Shareholder

TMV’s posting was entitled “Short This Stock” because we know that a “wait and see” approach to acquisition integration is usually a prescription for disaster. So we got to wondering how that whole thing panned out for old Magnus.

Ansell’s recent financial reports have pretty vague and jolly things to say about their recent acquisitions (the largest of which was Comasec) and they don’t break out comparative data. But the point of the Merger Verger’s commentary was on the value of the stock and that picture is not so rosy. Over the 18 months since our posting, Ansell’s shares have risen approximately 10% while the S&P/ASX Health Care index has risen over 30%.

In other words, had you invested in the index instead of Ansell, you would have had less risk due to diversification and a gain three times greater.   (Yoo hoo, Magnus?)

One chart says it all (blue line = Ansell, black line = Health Care index; time horizon = 2 years to today):Ansell shares 2yr v Index

Lousy acquisition integration practices followed by lousy stock performance … cause and effect? Who knows? But an integration strategy as dumb as “wait and see” surely didn’t help.

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Short This Stock

So the word from Oz should have the shorts doing chest bumps.  This from Magnus Nicolin, CEO of Ansell Limited (ASX: ANN), which acquired Comasec SAS:

The overall integration process will be a gradual one as we take time to get to know the Comasec business.

It would appear that even the most basic tenets of acquisition integration have not reached Australia yet.

In case The Merger Verger’s reading is unclear let me offer the shareholders of Ansell a translation:

We are standing by to flush our (your) investment in Comasec down the toilet using a process that will be slow but certain.

In fact, let me go a step further and offer a letter that you might want to send to the noble Magnus, your CEO:

Dear Mag:

We are glad that you are seeking ways to grow our investment in Ansell Limited. But I, for one, am distressed by what I read about your approach to the Comasec acquisition.  Please be aware that your future at my company will depend in large part on how well that approach plays out.

Now, me, I’m just a humble shareholder so don’t expect me to know as much as you about doing acquisitions but it occurs to me that a “gradual” process can’t be that smart. I mean, if you just sort of amble along doesn’t that merely postpone the time that any benefit might inure to us as shareholders? And wouldn’t it extend the time that we are paying for duplicated overhead? And increase the likelihood of employee defections?  And open us to competitor shenanigans? I’m just dubious.  Is “slow and steady” really the right approach here?

And another thing: you say you want some time to “get to know” the acquired company.  (Uhm … how do I say this nicely?)  I would have hoped you’d get to know the company before you spent my money to acquire it.  By the time the transaction closed, I would have expected you to know not only the target but also what you were going to do with it. You see what I’m saying?

Listen, anybody can make an acquisition.  I don’t pay you to do that; I pay you to make them work.  “Mañana” cannot possibly be the right approach.

So get on with. Today.

Cordially,

Cher Holder

The Merger Verger’s Take:

An “overall integration process [that is] a gradual one” is a failure waiting to happen.  A true short’s delight.