City: City takes its sweet revenge on Sugar

WE ARE about to witness something of an investment first: the spectacle of a recommended offer being turned down by shareholders. It is hard to imagine a more incredible end to a takeover. Institutions and private shareholders alike are flying in the face of the recommendation of no less a name than Kleinwort Benson, by sticking two fingers up at Alan Sugar's 30p-a-share bid to take his Amstrad consumer electronics group private once more. That's despite the fact that, in the absence of Mr Sugar's offer, it is highly unlikely the shares will trade at anywhere near 30p for many years to come. In essence, shareholders have decided to look a gift horse in the mouth.

Why? For many institutions, the official justification goes something like this. Mr Sugar, who knows Amstrad better than anyone, is not the altruistic type, and if he is offering 30p a share, the company must be worth a lot more. As far as it goes, it's a fair enough argument. Lord knows, both he and his advisers have offered little enough in the way of information for shareholders to make an informed decision. The problem is that you cannot force someone to work for you. Mr Sugar will almost certainly start to look for ways of bailing out of Amstrad if his bid fails. This is especially the case if the institutions force him to accept non-executives, as they insist they will, to look after their interests. Mr Sugar wouldn't be able to live with such constraints. Amstrad is Alan Sugar - it is based on his ideas, his suppliers and his customers. Without him, the company would quickly become worthless. Mr Sugar's service contract, once of five years' duration, expired in June (was this deliberate?) and there's nothing to stop him leaving. He still owns a substantial share stake in Amstrad, but he could no doubt find a way of realising his investment in a way which would leave other shareholders out in the cold.

Most institutions know this, yet still they are determined to reject his bid. In truth, the real motive for shunning Mr Sugar has little to do with the finer points of investment judgement; it's revenge, pure and simple. Mr Sugar has treated the City with contempt (he's stuffed the institutions with shares at hugely inflated prices) and now the City is going to get its own back, even if that means taking a thumping great loss. That's not perhaps the most responsible attitude for an institution in a position of fiduciary duty to take, but it sure feels good. If there's any lesson at all in this shabby little episode, it is this: never invest in one-man bands; the ride may be fun, but one way or another they'll always end up legging you over.