Comment: Shares speak louder than abuse on British Gas

"Many of the people who manage our pensions and savings would themselves be considered overpaid by those who vented anger at the British Gas annual general meeting."

Nobody likes to apologise for the overpaid and this column does not intend to. The incompetence with which British Gas has dealt with executive pay, as with so much else in its public relations over the past year, is evidence enough that Cedric Brown and his chairman, Richard Giordano, do not deserve the half million apiece they get for their labours, not in any case unless being held up to public ridicule is thought part of the job. None the less, an awful lot of guff is talked about the City's failure to stand shoulder to shoulder with small shareholders on this issue. Many of the people who manage our pensions and savings would themselves be considered overpaid by those who vented anger at the British Gas annual general meeting. But that is not why institutional shareholders were so little in evidence yesterday. Nor is it why the great bulk of fund managers invariably tend to back the board, at least in public, on the issue of executive pay.

Imagine what would have happened if they had voted in favour of the PIRC resolution. In essence it would have been a vote of no confidence in the board; most of the directors would have been forced to resign and a management crisis would have ensued. How easily or quickly it could have been resolved is anyone's guess but in the meantime the share price would have plummeted and the company would have drifted. It has been known for institutional shareholders to vote out an incumbent board, particularly in the US, but this is generally regarded as the nuclear solution, for use only when all else fails.

For one of our leading savings institutions to have accused the board of talking "bollocks and bullshit", as so many small shareholders did yesterday, might have made good copy; it might even have been what some of them, mindful of the views of their policyholders, thought. But it would also have been counter-productive, akin to a marketing man criticising his own product. If you don't believe in the product, you don't tell everyone that. You try to change it - or you get out. Whenever a company faces a revolt on the scale British Gas has, albeit from small shareholders mobilised as never before on the specific issue of pay, it is generally evidence that something is seriously wrong on a much wider scale. Yesterday's outpouring of rage should at least help institutional shareholders bring about necessary change at British Gas, which as always should start at the top. Messrs Giordano and Brown should be made to prepare a credible succession as rapidly as possible.

Gloves off in fight for VSEL

At last; the phoney war is over. British Aerospace yesterday fired the first salvo in what promises to be a bloody fight with GEC for control of VSEL, Britain's obscurely named builder of nuclear submarines. How is GEC going to respond? Here is what an adviser might be telling Lord Weinstock, managing director, as he considers his options: "It is as important for British Aerospace to win control of VSEL as it is for GEC to prevent the takeover. How much can BAe afford to pay? Do we gain more by outbidding BAe or by forcing it to overpay?

"BAe's opening offer is a mere sighting shot. What we have to do is reply with an all-cash offer sufficient to spread doubts about BAe's chances of winning - say about pounds 18.50. That, in turn, should depress BAe's share price and reduce the value of its paper offer. BAe's successful two-part rights issue means it has reserves to raise the cash offer and improve the paper terms. But there is a limit and BAe investors will soon begin to worry about the risk of overpaying.

"BAe wants VSEL as a prime contracting platform from which it can control projects, and margins. There is also VSEL's pounds 300m cash to consider, as well as the opportunity to reduce tax by offsetting its own past losses against VSEL's profits. Even so, BAe would find it hard to sell anything above pounds 20 a share, which is the level at which dilution sets in. BAe has rebuilt its financial credibility over the last couple of years, and the damage done by overpayment would be long-lasting.

"GEC can easily outbid BAe if it wants VSEL badly enough. It depends how important this is to you. Is it the Trafalgar contracts you are after, or is it just a way of stymieing BAe's ambitions. If the latter, pounds 20 looks a high price for a defensive takeover, especially if your eventual target is BAe itself. On the other hand, a BAe victory could put the company out of your reach for good. So if the eventual target is BAe you may have to take the short-term pain of overpaying for something you may not in truth be too bothered about. Either way, it seems the cards are heavily stacked in your favour. Even if you lose the hand, the long-term game is yours provided BAe is fatally wounded financially in the process."

Time past for Kerkorian wing-and-prayer bid

For a while there it looked like Kirk Kerkorian, with his $22.8bn bid for Chrysler, was about to bring the Eighties corporate raid back into fashion. But with his offer now officially withdrawn seven weeks after its inception, he has in fact done the opposite. Wing-and-a-prayer bids - especially those with no money behind them - just will not do in the mid-Nineties.

The sheer scale of the attempt meant that it could hardly be ignored. Mr Kerkorian, who is 77, did not have a reputation of letting go of his mice easily. Moreover, he had solicited the support of none other than Lee Iacocca, the former Chrysler chief and America's most famous corporate legend.

Even so there was almost instant scepticism on Wall Street about the viability of the offer. Where was the roughly $18.5bn in required financing going to come from? The wind, if there ever was any, seemed to slip from Kerkorian's sails within days. Bear Stearns announced that it would not serve as his investment adviser. European manufacturers made plain they were not interested in taking part. An early climb in Chrysler's share price quickly began to slip.

Chrysler's Robert Eaton, meanwhile, set his face firmly against the bid. At the heart of his case: his determination to protect the $7.3bn fund that Chrysler has built to protect itself against the next sales downturn. A Kerkorian takeover would have siphoned off at least $5.5bn of it.

At Chrysler's recent annual meeting in St Louis there was not one speech made in favour of the Kerkorian offer. The "gambling dude" from Las Vegas should be told where to go, one shareholder opined. The bid, at least, is now gone, and Mr Kerkorian has little to show for the venture. Certainly, his reputation has been scarcely enhanced, nor has that of Iacocca. And whereas a tussle of this sort in the Eighties might have offered some return in greenmail money, not so today. Mr Eaton and his colleagues showed no inclination to buy back Mr Kerkorian's stake. The Eighties, it seems, have gone for good, much as Mr Kerkorian would have liked to revive their freewheeling ways.

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