Tavistock Investments PLC (LON: TAVI) shares have jumped 45% this morning on the news that they’ve reversed their decision to buy Morgan, the West Country investment adviser. Clearly, this comes as something of a relief to the market but this does then lead to the question of, well, what next at Tavistock?
The real question, of course, is why has that transaction been cancelled? The stock exchange announcement from Tavistock doesn’t really tell us all that much: “Further to the announcement made by the Company on 17 January 2022, Tavistock today announces that its proposed acquisition of Morgan Financial Group Holdings Limited (the “Transaction”) will no longer take place. Brian Raven, Tavistock's Chief Executive, said; “The Transaction is no longer in Tavistock's strategic interests and therefore will not proceed. We wish the Morgans team well with the future development of their business.”” And that’s it – shorn of the bumph about how this is a stock exchange statement from Tavistock and all that.
The original deal didn’t look that bad and there certainly wasn’t any significant fall in the Tavistock share price when it was announced. So it’s not outside shareholder pressure that has caused the deal cancellation. There’s been no grand shift in the market these past three or four weeks. So we’re rather left wondering what has caused this change?
It might be that in the process of sorting out the details some change in Morgan’s underlying financials was discovered or something but other than that, well, what?
Fund management hasn’t suddenly, in these weeks, become a worse business to be in.
Which leaves us with that wondering. Why did the announcement of the Morgan’s purchase not tank Tavistock shares, but the cancellation is making them soar? In the absence of further information, we don’t really know and can therefore only speculate. Which is also what any position in Tavistock shares is going to be until more information is available – a speculation.
It’s possible to think that this means an end to thoughts of expansion by acquisition. Given the way that fund management works – high fixed costs to create a platform, meaning network effects come into play as more assets are managed – that may or may not be a good idea. Depends on the acquisition costs of the extra funds to be managed.
Or it could be just that this specific deal was decided against despite how far it had gotten through the process of being considered. That could even be a positive for Tavistock, the willingness to change minds as facts change.
Tavistock is difficult to trade in and out of – that 0.75p spread will take a large piece of any price movement – but speculation about what the future might hold could send the shares either way.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.