I have worked with clients who take this so seriously that when the bid documents are virtually complete, they are delivered to the CEO, who then writes in the final price by hand and seals everything up. This way only one person in the company knows the final number.

 

I had always assumed that the reason for keeping the final decision confidential was to minimise the risk of an information leak. Turns out, it's a bit more complicated than that.

One of my clients, Cantell Corp, has been very successful in growing its business through well-priced acquisitions. Despite the fact that I have advised them on every one of these acquisitions, until last week I had never been in any of their meetings on the final price. But last Thursday I finally got an invitation.

My team and I had been working for Cantell for months on their upcoming bid for a small telephone company called Wontell. We had prepared projections of the assets, cash-flow and income of Wontell for the next 20 years. We had put together a detailed analysis of Wontell's financing structure and where it could be improved. And we had worked long and hard with Cantell's team to demonstrate that additional value could be extracted from Wontell once it was part of the Cantell group.

In the end we concluded that based on a cash flow analysis at a 17 per cent discount rate, Wontell was worth between US$730 million and US$790 million. All the board had to do was decide the final number, depending on how aggressive they wanted to be. And this time I was asked to join the meeting.

At 6pm on Thursday, my team and I arrived at the client's office and waited in the hallway until the Cantell board was ready to deal with the acquisition. About half an hour later we were shown in.

None of the boardrooms I have visited in real life look anything like the boardrooms of my imagination. This boardroom was no exception. There was no wood panelling, no framed portrait of the company's founder and his dog, and no uniformed assistants serving tea in dainty little china cups.

This boardroom looked like every other meeting room I have visited. Video screen at one end, standard grey office wall at the other. Windows on one side with the blinds down blocking the view of the harbour and windows on the other side with blinds down blocking the view of the rest of the office. The board members all sat on Herman Millar swivel chairs, around a big glass table, in the middle of which was a projector attached to a laptop containing my presentation.

Ordinary as the setting was, this was still an important occasion. I would run through my presentation explaining our valuation analysis and recommendations and then I would get to participate in a discussion with some of the sharpest minds in the industry, old men who have worked their way up through the many layers of executive responsibility, ultimately reaching the upper echelons of power. People who guide the strategy of a big corporation and whose decision affect the lives of thousands of people. I would finally get to see behind the curtain into this highly confidential setting.

A grey-haired man with a white moustache was the first to speak.

"So Mr Alanson, your conclusion is that the asset is worth between US$730 and US$790 million?" he asked.

"Yes sir that's right," I replied, "based on..."

"So is it 730 or 790? It can't be both!" he said indignantly.

"Ahh, yes, well the reason for the range," I continued, "is that under certain scenarios the asset could produce more value in later years. For example if the exchange rate moves in a favourable direction, that will mean an increase in cash flows here in our home market."

I tried to continue to explain the effect of a few different outcomes, exactly as I had in earlier in my presentation, but before I could get very far, I was interrupted again, this time by a small man with large ears.

"Seven hundred and seventy million has a nice ring to it don't you think" he said.

"Sorry?" I asked.

He turned to the rest of the board members.

"Actually, seven hundred and seventy seven, sounds even better."

I paused for a moment, waiting for everyone to burst out laughing. Surely the bald guy was not seriously proposing that we bid based on the ring that the proposed number had to it? But there was no laughing. Instead, the man with the white moustache said: "I'd be happier if we bid at least 800 million, I mean we might as well if we're up around 700 or so."

There was much nodding at this observation and the bald man spoke up again.

"Well, OK, how about 8-0-8? That sounds quite nice and should even be a lucky number."

A few of the other members voiced their approval and before I could say anything it was agreed, they would bid at US$808 million.

So, within three minutes of my presentation, the board had made its decision on price, based not on our analysis but on what sounded nice and might be lucky.

As my team and I walked back to the lift in silence, I suddenly realised how important it was that this meeting stay private.

"We must not speak of what we have seen to anyone," I said to my guys. "Certainly our bid price must remain confidential, but that's nothing compared to the importance of protecting the details of Cantell's decision-making process."

That's what really has to be kept secret. If the market knew what a bunch of muppets the Cantell directors were, then my client's share price would be in the gutter before you could say "CONFIDENTIALITY".