M&A can prove horribly expensive. First you have to hire the bankers, lawyers and PR people. Later, there are pricey redundancy packages and site closures, typically referred to as “one-off costs”. If you're lucky, synergies will cover the takeover premium and cost of capital. Often they don’t.
Happily, Bovis Homes Group Plc has managed to avoid all that. Rather than merge with rival Galliford Try Plc, it's hiring Galliford’s old boss Greg Fitzgerald as its new CEO. This might not thrill those well-remunerated deal bankers, but it's a tidy solution.
Galliford had tabled a merger proposal a few weeks ago. The terms weren't especially appealing and Galliford wasn't a perfect fit, as I noted here. The Bovis board concurred.
Hiring Fitzgerald makes plenty of sense. Bovis has been without a permanent CEO since January, when former boss David Ritchie quit. In a rush to complete homes on time, the company had problems with quality and annoyed customers. Bovis’s troubles are eminently fixable: it didn’t need a deal nearly as much as strong leadership.
Fitzgerald should be able to provide it. Starting out as a tea boy, he led Galliford for a decade. As CEO he shifted its attention from infrastructure construction towards homebuilding, and delivered an 18 percent annualized total return in the process. He stepped down as CEO in 2014, briefly becoming chairman.
Of course, most mergers are conceived with a rationale that goes beyond bringing in better leadership. It's also rare that veteran CEOs become free agents so young. Fitzgerald is still 52. The Bovis gambit probably won't spawn many copycats.
Still, Fitzgerald will earn less than 3 million pounds ( $3.75 million) a year at Bovis, including bonuses and a long term incentive plan. Compared to the cost and risk of a merger, that's decent value.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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