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Carburton Street, London -- Analysing mergers and acquisitions has never been easy. There's plenty of scope for shareholders to miss a deteriorating financial performance when the accounts are clouded by significant corporate activity. And when it comes to corporate re-jigs in the stock market's top tier, there's none more complicated than the current goings-on at Granada Compass (LSE: GCP). The company's "interim" results were published this morning and with them three different sets of accounts and a two-page explanation of the reasons why. Here's my take on what's occurring at Granada Compass. Now, pay attention... Granada Compass was formed in the summer after the merger of leisure group Granada and catering firm Compass. Prior to the merger, Granada had disposed of its television rental business and spun-off its media interests to form Granada Media (LSE: GME), with Granada Compass subsequently retaining 80% ownership. So at the moment, Granada Compass consists of Granada's hotel and restaurant operations, Compass' catering and hospitality businesses and a stake in Granada Media. Now, this is where things get tricky. Granada Compass is set to demerge early next year. A separately listed company to be called Compass (sound familiar?) will be created and Granada Compass will transfer all of its businesses to this new entity. This will effectively leave Granada Compass as a shell company whose only asset will be its 80% stake of Granada Media. And so, after the demerger, Granada Compass and Granada Media will consolidate to form plain old Granada (er, sound familiar?). All in all, it's a horrendously complicated way of transferring the non-media interests of the original Granada over to Compass. And after Granada Media reported last month, trying now to get a handle on today's overall financial performance from the "new" Compass is difficult. Final results or interims? Because of statutory accounting requirements, Granada Compass's "interim" results (they actually review the year to 30 September!) reflect the performance of Granada Media and Granada's old television rental business. The original Compass business isn't included because of its "transitional nature", the operation due to imminently dermerge to form "new" Compass. Thankfully, Granada Compass provides an operational commentary on the soon-to-be-dermerged "new" Compass (i.e. with Granada's transferred operations). But in a bizarre twist, only the full accounts for the original Compass business (i.e. without Granada's transferred operations) are provided! Oh, the numbers... Anyway, turnover at "new" Compass during the year rose 10% to £8,302m, underpinned by like-for-like sales growth of 7-8% at both the original Compass business and Granada's restaurants. However, while the company goes to great lengths to highlight new contracts won over the reporting period, little is said about the margin erosion. Operating profits (after adjusting for the implementation of FRS15 -- aargh!) only rose 6% to £607m. Slightly disconcerting is the fact that the group's UK operating performance, by far the biggest contributor to overall group performance, remained flat. However, the Compass board is upbeat: "Synergy in the UK is already being realised... and the group is on track to deliver the overall synergy benefits of £70m per annum, as predicted, by 2003". At this stage, without firm evidence of any merger benefits, I wouldn't rely solely on management comments just yet. In short, unless you've got plenty of stamina to examine the multiple accounts, Compass is one to revisit when the merger dust finally settles. Where Next? TMFEagle Gazes at Granada
TMFEssex asks "What is Granada For?"
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