Contractor Programmed Maintenance Services shares leapt by around 20% last week after the company announced its financial results for the year ended 31 March 2009. Programmed reported a 32% increase in revenue to $1.23 billion (of which, $84 million was attributed to SWG, which Programmed acquired in 2008), while earnings slipped by 1.2% to $28 million. The group’s workforce division, which provides recruitment and labour hire services to more than 2,500 customers in a range of sectors, was able to increase EBITA by 24.2% to $12.7 million.

While the market approved of the results and the reduction in debt levels from 231 million to $177 million, what caught the eye was Programmed’s decision to spend $3.4 million on “takeover defense” and “restructuring” costs. The amount spent was certainly not immaterial, being more than 10% of the company’s entire profit for the year. (The banker spend is especially high compared with Programmed’s rather frugal executive remuneration policy. Current CEO, Chris Sutherland, received only $175,672 for six months service in 2008 while former chief, M Findlay, was paid $1.71 million in 2008, which included a $569,091 termination payment after twenty years of service).

While investment bankers certainly don’t come cheap, Programmed shareholders may be forgiven for questioning whether they received outstanding value for money from Macquarie Bank in its defence from Spotless’ hostile bid last year.

On 27 March 2008, Spotless formerly launched a takeover bid for Programmed offering shareholders share and cash or all-share options. Based on Spotless’ current share price of $1.90 (at time of the offer, Spotless was trading at $3.77 per share), the all-share alternative was worth $3.07 per Programmed share. Under the maximum cash alternative, Programmed shareholders would have received $4.57 per share. Even after its recent price rise, Programmed shares are trading at $2.50 each, 46% less than the value of the maximum-cash offer.

On 7 May 2008, Programmed sent shareholders its Targets Statement recommending shareholders reject Spotless’ inadequate offer, noting that the offer “does not reflect Programmed’s strong business model and growth potential.”

The issue soon became moot, on 6 June 2008, Spotless abruptly terminated its takeover bid, allowing the offer to lapse due to a poor earnings result from Programmed. Programmed had reported that EBIT for the year ending 31 March 2008 of $54.4 million, below the $56 million threshold upon which Spotless’ bid was conditional. At the time, Spotless noted that “of particular concern [was] the unexpectedly poor FY2008 performance in Programmed’s core Property Management serviced division, reporting … a fall of approximately 10% from FY2007”.

Programmed’s management and board were no doubt delighted with the result — however, the decision by Spotless to withdraw its bid was not due to the fine financial advice provided by Programmed’s investment bankers, but rather, due to its poor earnings performance.

Programmed shareholders, whose shares are now worth around half of what Spotless was offering, must be wondering why their board paid $3.4 million to bankers when it was their own poor management which drove away their generous suitor.