James Moore: Mandy's right on predatory takeovers

Outlook: When news of a bid breaks, there tends to be precious little talk about whether it's a good or a bad idea
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The Independent Online

Lord Mandelson had best prepare himself. When he gets to his in-tray he's going to find a wet lettuce just waiting to give him a slap in the face for daring to wag his finger at the City for (yet again) flogging another prime asset on the cheap.

The Association of British Insurers (ABI) has written to the Business Secretary to berate him for suggesting changes to the takeover rules to make it less easy for predators like Kraft, whose hostile takeover of Cadbury continues to rankle.

What got Mandy's goat was the fact that Kraft was able to string the bid out, thereby ensuring that there were enough short-term speculators (willing to accept any price that made them a profit) on Cadbury's shareholder register to guarantee victory.

He wants rules to make this harder, and has also called (again) on company directors and shareholders in general to act as "stewards" who will look at what's best for a company in the long term rather than selling out for a quick buck the instant a bidder weighs in.

Enter the ABI with its contention that had Mandy's colleagues not strangled the insurance and pension fund industries in masses of often badly thought out regulations there would be a lot more long-term shareholders about to achieve his aims without any need to muck about with the City's beloved takeover process.

The sort of long-term shareholders who, before those regulations were brought in, regularly stopped any number of bad bids from going ahead and fought tooth and nail against the type of wheeze beloved of private equity firms. You know, the one where the wolves would come in, take a company private on the cheap, load it up with debt and sell it back to the same investors at a huge profit to themselves. Just one question, then. If ABI members were such good stewards why was this so common?

And remember, too, that ABI members were prominent among those who backed the takeover of Friends Provident by Resolution, handing control of a medium sized but recovering life insurer to an offshore predator with a private-equity style reward structure for its management in what was a deeply cynical, old-style City stitch up. If that's what ABI members think stewardship is all about, then maybe it really is time for a rethink. It would certainly be a thoroughly good thing if the UK stock market had more investors with a long-term perspective. Whether it would be such a thoroughly good thing to have ABI members making up a greater proportion of the stock market is not quite so clear.

The letter does eventually address the core issue Mandy raised: the way the takeover rules appear weighted in favour of bidders. It rejects the suggestion that a bidder should secure up to 66 per cent support for a takeover to go through because (it says) if you have 50 per cent of a company you have control. But it also pooh poohs the CBI's (much better) idea that only those who have held shares for a defined period (up to six months) should be able to vote on takeovers, warning that the turnover of shares in M&A situations is so great that the vote might be left to a small number of investors. The ABI worries that the rule could therefore protect bad companies that really ought to be taken over for their own good.

That concern is legitimate, but it doesn't mean that the CBI's idea isn't worth trialling. Because Mandy's right – the rules are tilted too heavily in favour of hostile bidders. When news of a bid breaks, there tends to be precious little talk about whether it's a good or a bad idea. The conversation is usually entirely focussed on how much and when. And that can't be a good thing for Great Britain plc.

The regulations that inhibit pension funds and insurers from holding shares certainly need revisting. But so do those governing takeovers.

If it doesn't like the ideas that Mandy and others have put forward for reforming the system, the ABI might want to consider tabling sensible proposals of its own. Instead of carping from the sidelines and concentrating on its narrow sectional interests.

Britain: the doddering, digital dump

It's election time, so Gordon Brown is even busier than usual making bold announcements™. Yesterday, we were told Britain is to be a "world leader" in the digital economy by 2020, with superfast broadband in every home. It sounds marvellous in principle but a bit of a tough ask, given that Cisco reckons we are currently in 25th place behind Taiwan and Latvia. Even that 25th spot will look like an exaggeration to anyone who has had dealings with those who actually control the sub-standard broadband we have at the moment.

Mr Brown can issue as many windy pronouncements as he likes about making Britain No 1, but what the average voter would really like is to be able to get connected to reasonably priced broadband that works with minimal grief, and that is just not happening. If the Prime Minister wants evidence, all he needs to do is talk to anyone who has had the misfortune to deal with a broadband provider recently. BT, Sky, Tiscali, TalkTalk, the names change but song remains the same: they stink. Glossy and expensive "try us" ads give way to a diet of multi-layered telephone menu systems and long delays while disembodied, pre-recorded voices spew out what long-suffering customers know to be a flat out lie: "Your call is important to us."

If you move house, you are typically told it will take 10 to 14 days to get connected. In the new satellite towns being built around Delhi, a call in the morning will see you hooked up by the time get home from work. If Mr Brown, or his successor, are serious about improving Britain's digital performance and infrastructure, they could do worse than to invite the motley crew mentioned above to a reception at Downing Street and, when they turn up, clap them in irons and send them off to the Tower.

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