There are no new stocks I can add to my SIF folio this week. So instead I’ve decided to take a look at an interesting deal that’s due to complete later this quarter.

The planned merger between accident management firm Redde (LON: REDD) and van hire business Northgate (LON: NTG) was a big surprise to me. I couldn’t really understand the logic behind this combination.

The only obvious thing I could see that linked the firms was their chairman. Avril Palmer-Baunack was chair of Redde until the end of July 2019. Ms Palmer-Baunack then took over as Northgate chair on 12 August. On 29 November, the merger was announced.

Winners & losers?

My instinctive view is that Northgate shareholders are getting the worse half of this deal. Although the firm faces cyclical headwinds and some company-specific issues, fundamentally I think it’s an attractive business.

Former chief executive, Kevin Bradshaw, had been MD of Avis Europe for five years, so had experience in this sector. He was guiding Northgate through a turnaround programme aimed at maximising return on capital employed. This was (slowly) starting to deliver positive results, in my opinion. However, Mr Bradshaw wasn’t part of the merger plan, or perhaps didn’t agree with it - he stepped down with immediate effect when the merger was announced.

In contrast, Redde has delivered attractive shareholder returns since 2012, but is now facing a weaker outlook. Profit forecasts were cut in March last year, after a cautious set of interim results. Another earnings downgrade followed soon after, thanks to the loss of a major contract.


Regulatory change is also a permanent risk for companies such as Redde, which rely on income from personal injury claims. New rules on such payouts are due to come into force in April 2020. Is it a coincidence that this merger has been proposed just at this time? I note that Redde’s smaller rival NAHL has just issued a profit warning for 2020 and suspended its dividend.

I admit that my sceptical view on this deal is highly subjective and possibly mistaken. So I decided to take a fresh look at the proposed merger, using a quantitative approach. My aim was to try and…

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