Business Analysis: Why we'll not see the likes of the barnstorming James Hanson again

Today's conglomerates are to be found in private equity, not the publicly quoted sector
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The Independent Online

It was early in 1986 and the epic battle being waged between James Hanson and Hector Laing of United Biscuits for control of Imperial Tobacco was nearing its climax. In an effort to explain why the cigarette company would be so much better off in the hands of a confectioner than an asset stripper, Laing declared with a flourish that it would enable UB to "take its biscuits into Brazil".

Hanson replied: "Hector will get his brains beaten out in Brazil and I have told him that." In the end, Hanson emerged victorious, Hector avoided his pummelling and another leg was added to one of British capitalism's greatest success stories of the last half century.

It is hard to imagine a captain of industry coming out with that sort of blood-curdling imagery today, even in the heat of a closely-fought takeover battle. Then again, it is hard to imagine another James Hanson. He was the last in a dying breed of buccaneers who bestrode the corporate stage, picking up unconsidered trifles here and under-performing businesses there and turning them into cash cows with a ruthless blend of cost-cutting and financial engineering.

The heady days of the 1980s, when Thatcherism was at its most potent and companies everywhere seemingly trembled at the prospect of who would be taken out next, produced a series of "mini-me" corporate raiders, pretenders to the Hanson throne and the title of undisputed King of the Conglomerate. There was Nigel Rudd of Williams and Owen Green of BTR. And then there came Greg Hutchings of Tomkins, the "buns to guns" combo, and finally Tiny Rowland of Lonrho who matched Hanson in physical stature if not size of empire.

Their empires have all gone now, along with, in some cases, the principles. They will never return, at least not in the form of quoted stock market companies with shareholders to keep happy and corporate governance rule books to abide by. Hanson, a group which spanned chemicals, bricks, coal and electricity as well as tobacco, was split asunder in 1996, its founder's swansong just before he took his bow from the corporate stage. Williams was also broken up into its component parts, while BTR disappeared into the disastrous combination that was to become Invensys. As for Lonrho, once the owner of everything from hotels to the Observer newspaper, it has mutated into a platinum producer called Lonmin.

Why will these businesses not return, at least not in their original form as public companies run by larger than life characters such as Lord Hanson and Tiny Rowland?

Well, one reason is that the word "conglomerate" has long since become a term of abuse in the City. The buzzword is now "focus". Investors are no longer interested in, or trusting of, companies which house an array of completely different businesses under one roof. They demand managements who understand the individual businesses which they run, not financial engineers, for whom a coal mine is no different from a widget factory provided the same philosophy of squeezing cost and sweating capital is employed.

The other reason is governance. These days, it would simply be impossible to run a publicly-quoted conglomerate as a private fiefdom in the way that, say, Lonrho was controlled by a chief executive who once famously likened his non-executive directors to "decorations on a Christmas tree". Today, Tiny Rowland would be shot by the corporate governance police for less than that. In truth, nor would the boards of Hanson and Lord Weinstock's GEC - another conglomerate run by a long-gone titan of industry - have borne much scrutiny in today's climate, packed as they were by time-servers and insiders and relatives.

Higgs, Hampel, Greenbury and Cadbury have created a box-tickers charter from which there is no escape and institutional investors, who were at one time pusillanimous in the face of an over-bearing chief executive, at last seem inclined to use the ammunition they have been given. Just consider the way in which Michael Green was dispatched from ITV before the ink was even dry on the Carlton-Granada merger.

And yet the conglomerate is not entirely dead. Rather, it has re-emerged in another form known as the private equity firm - funds which operate well away from the glare of public scrutiny. They are also run, by and large, by faceless accountants although there are some odd and honourable exceptions - Philip Green, the owner of Bhs and Arcadia, Guy Hands of Terra Firma, and Robin Saunders, the former diva from WestLB, to name three.

Increasingly, high-flyers who once ran public companies are taking the easy life and the private equity shilling, secure in the knowledge that they will be free to earn salaries beyond the dreams of avarice, free from the prurient gaze of private investors.

Think of what takeover activity there exists today and consider how much of the action revolves around private equity bids. Will Sainsbury's get taken out? Hard to say but if it does happen, the betting is that it will be a consortium backed by private equity.

So, where we once had Hanson and Hutchings and Rudd and Rowland, here is the face of capitalism, 2004-style: Cinven, CVC Partners, Permira, Duke Street Capital and Bridgepoint.

These are the nearest you will get to a conglomerate these days - vulture funds that gobble up quoted companies, chew the fat from them and then spit the remains out to be served up once more for consumption by ordinary investors.

CVC, for instance, is the faceless owner behind William Hill, the AA, Halfords, Kwik-Fit, Debenhams and IG Index - a rag-bag of disparate businesses if ever there was - while Bridgepoint includes Adams Childrenswear, Virgin Active and Holmes Place in its stable. Duke Street's roll-call includes Wickes Focus, Sporting Index and Esporta while Permira is the shy owner of Travelodge and Premiere.

Does any of this matter? Yes, in some senses, it does. These new owners of large swathes of corporate Britain are much less accountable than the swashbucklers and robber-barons of old - at least they had shareholders to answer to. And, to be frank, it makes the business world a duller place.

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