David Prosser's Outlook: A sad end to 250 years of Equitable Life

Sports Direct cashes in on Nike; Emap's U-turn for shareholders

Had things turned out differently, staff at Equitable Life might just now be beginning to think about how best to celebrate the insurance company's 250th anniversary in 2012. Founded in 1762, Equitable is one of the UK's oldest companies and until the scandal that brought it to the verge of collapse in 2000, it was also one of the most widely respected. Since then, however, it has faced exceptionally difficult times and chairman Vanni Treves' announcement yesterday that Equitable will be auctioned off next year means the company will close its doors once and for all just four years short of its 250th birthday.

This may be a sad ending for Equitable, but the final chapter in its history has actually been much happier than it might have been largely thanks to the efforts of Mr Treves, who was parachuted in as the company hit rock bottom in early 2001. His biggest achievement was to get backing from policyholders for a compromise deal that curtailed many of the payouts they received, but saved the insurer from outright insolvency.

Since then, Equitable has slowly managed to move towards more stable ground. Last year's sale of the non-profit pension annuity book to Canada Life was only possible after several years of careful financial management. The same applies to the deal Equitable is now close to completing with Prudential, which is to take over its with-profits annuity business.

Still, a sale of Equitable's final sizeable asset, its with-profits investment fund, is the best hope that ongoing policyholders have of any significant uplift to their future benefits. As an independent insurer running a closed fund, Equitable does not have the fin-ancial muscle to invest in assets likely to produce improved returns. A rival manager, such as one of the specialists in closed-end funds, might do better.

The auction of Equitable will, however, be a timely reminder of just how badly the insurance company's policyholders have been let down by financial watchdogs, which failed to spot the black hole lurking in the insurer's accounts, failed to protect policyholders when the scandal broke, and then failed to bring to book the executives responsible for the scandal.

There's certainly an interesting comparison to make with Northern Rock. Equitable's problems were in one sense very similar to the crisis that hit the mortgage bank this year. It was suddenly confronted by vast numbers of customers who wanted to withdraw their cash at the worst possible time for the insurer. Unlike at Northern Rock, however, the Government was not prepared to get involved, let alone consider a bail-out.

There may yet be a fascinating and controversial footnote to the Equitable affair. Ann Abraham, the Parliamentary Ombudsman, has spent much of the past three years investigating whether those hit by Equitable's collapse were victims of government maladministration. When Ms Abraham eventually publishes her findings a verdict is not expected before next April she may rule that policyholders were failed by regulators to such an extent that the Government should compensate them.

Such a verdict would be sure to meet with a hostile reception from ministers, who fear a compensation bill that could run into billions of pounds. For Equitable policyholders, on the other hand, Ms Abraham is their last hope for a victory in their seven-year fight for justice.

Sports Direct cashes in on Nike

Sports Direct owner Mike Ashley may have some well-documented rough edges, but he's nobody's fool. Having amassed a stake of almost 30 per cent in the England kit maker Umbro in October, Sports Direct was in a strong position to block Nike's agreed bid for the company if it had been so minded.

Yesterday, however, Mr Ashley backed the bid and said he had already sold Nike two-thirds of Sports Direct's Umbro shares, at the agreed offer price of a little over 193p, booking a handsome profit.

In fact, it would have been daft to do anything else. Sports Direct may be struggling to get shoppers through the doors of its stores right now, but the gains made on its Umbro stake will swell the coffers of the retailer (or at least help reduce its debt).

Mr Ashley's purchase of Umbro shares was part investment, but the stake was also meant to give him some additional negotiating power with the kit maker, from which Sports Direct is contractually obliged to buy a certain number of replica shirts. Right now, Sports Direct isn't particularly keen on that contract, given the lack of demand for England kit, but the retailer is retaining a 10 per cent stake in Umbro, enough to maintain its bargaining power.

As for the future, Nike has offered Umbro customers some basic assurances about the way they will be treated once it wins control of the company. In any case, Sports Direct can keep its 10 per cent stake for as long as it sees fit, as an additional lever.

The bigger question about this takeover story is why Nike launched its bid for Umbro when it did before the England team had secured qualification for next year's European Championships. The subsequent failure to qualify has hit Umbro hard, as it confirmed again yesterday with a profits waring. There must, therefore, be a major suspicion that Nike is over-paying for the company.

Given that Umbro stock was trading below 110p in late September, even before it became apparent that Steve McClaren's maestros were going to come up short, the company's shareholders have had something of a result. Mr Ashley, for one, is sitting very pretty.

Emap's U-turn for shareholders

What lies behind Emap's swift change of heart over whether or not to sell its business-to-business publishing unit? Two weeks ago, chairman Alun Cathcart, who has spent all year conducting a strategic review of the media company, said that while he was happy to sell Emap's consumer units for what bidders had offered, no one had proposed a sufficiently high price for the b2b operation. He therefore promised to keep it.

Yesterday, however, it emerged that Emap has, after all, decided to offload the b2b unit, to a consortium consisting of Guardian Media Group and Apax, the private equity group, one of the original bidders. The price is understood to be higher than the offer Emap said no to a fortnight ago, but still short of the 1.3bn that Mr Cathcart had originally hoped to secure.

What's happened here is a good old-fashioned shareholder revolt. Mr Cathcart may well have been quite right to take the view that it would be short-sighted to flog off Emap's b2b operations for less than they were really worth. And it is a tough time to sell any sizeable business the global credit crisis has squeezed the funds that bidders have available to them. Holding on for a while might produce a better price in the future.

Emap shareholders, however, including some major institutions, were expecting a sale of the business and have let Mr Cathcart and his colleagues know how unimpressed they were with the decision to keep the unit. Emap shares dived more than 10 per cent in the immediate aftermath of the announcement earlier this month and have remained stuck there ever since.

Fortunately for all concerned, however, it turns out GMG and Apax were prepared to come back to the negotiating table with a better offer a proposal Emap was quick to seize on, despite its misgivings about the real value of its b2b assets. Investors got what they wanted and the announcement of a deal sent Emap shares soaring back yesterday.

Mr Cathcart and his colleagues clearly felt that they could not say no a second time. Accepting the offer may prove to have been the wrong move, but it's what the market wanted.

d.prosser@independent.co.uk

Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?