James Moore: Phantom bid for Betfair is a blast from the past that's not worth backing
Outlook. Plus: Cable's pub rescue will drown some sorrows; Big payout for exchange as it books Goldman
James Moore is the Independent's Associate Business Editor and writes the Outlook City comment column from Tuesday to Friday. He also has a keen interest in disability issues and when not attempting to further injure himself playing wheelchair basketball.
Tuesday 23 April 2013
Has one of the companies in CVC Capital Partners' portfolio suddenly developed a workable time machine? It looks that way. Consider how the private equity firm and its pals are conducting their attempt to gobble up Betfair.
The gambling company yesterday told us that CVC's consortium might be willing to pay 880p a share to take the company off its current owners' hands.
But only if management first says yes. And opens up the books. After which, assuming it all goes well, the bidders will trot off into the City to see if someone out there is willing to cough up a loan of just over £900m, which will be loaded on to Betfair when the new boys take charge.
This sort of phony proposal used to be par for the course in the good old days before the financial crisis. Instead of putting down proper bids, potential acquirers would attempt to force the hands of their targets by tabling apparently attractive takeover "proposals" with long lists of conditions. The share prices of targets would nonetheless shoot up, and hedge funds would pour in hoping for a quick buck.
The targets' boards, now under pressure to do a deal from those hedge funds, would often cave in and open up their books, and their boardrooms, only for the prospective buyers to decide that things didn't look as pretty as they at first thought. They would table bids, but lower ones than in their first proposals.
By this time, so many people would be invested in the takeovers succeeding that shareholders would assume the position, and the bidders would be off to HBOS to sign loan agreements.
At least, that was the theory. Sometimes boards were made of sterner stuff, but it didn't stop some of the phantom bids hanging around for months, prompting the authorities to stiffen takeover rules that heavily favoured bidders over targets. Not by enough.
There may be some who feel that something close to 880p for Betfair at least makes it worth playing. That price puts the company's shares on a fancy multiple of more than 30 times this year's forecast earnings, more than twice what William Hill enjoys and nearly a third better than the fast-growing Paddy Power, from where Betfair hired its current chief executive Breon Corcoran.
However, it still undervalues the company, which is by far the world's biggest betting exchange. When it comes to exchanges, you're either the biggest or you're nobody. The big dog gets nearly all the punters, so is able to post the best prices and offer the tightest spreads, so gets nearly all the punters. And so on.
Debt-ridden Spain said yesterday that it would add betting exchanges to its list of regulated gambling products, presumably because it wants the tax. Others may follow.
It's true that stupidity is not a commodity that is in short supply in the City but if Betfair's shareholders are entertaining this proposal, here's something they should consider.
CVC might have used a time machine to produce a takeover tactic from the past, but said machine probably won't be able to bring any money forward. So who's going to cough up that £900m in today's market?
After all, HBOS, which used to love getting involved in this sort of thing, doesn't exist any more. And we all know why.
Cable's pub rescue will drown some sorrows
Is the Government getting closer to setting up OfPub? It looks that way.
Vince Cable yesterday said the Government would crack down on the "beer tie", which forces pub tenants to buy their beer from the company holding the lease on their premises.
It's not exactly a new policy, having been in the works for a while now, but with figures suggesting that an alarmingly high number of licensed premises are calling last orders for the last time, it's a welcome development.
Pub companies often argue that tenants who complain about their situation simply aren't very good at the business. They can usually provide examples of how savvy publicans have done very well out of the tied relationship.
But when one looks at the pub industry generally, it's hard to escape the conclusion that the worst businessmen are the ones at the top who loaded pub companies up with debt, squeezed tenants as a way of servicing it, and then watched the roof fall in at thousands of them up and down Britain when the economy went bad.
Mr Cable's plans won't save the sector. Pubs are having to adapt to changing consumer tastes and behaviour, which can be expensive, combined with a rotten economy. His Government deserves much of the blame for that economy.
But if the new pub adjudicator has teeth, it may at least provide a bit of relief for strugglers, who will drink to any help they can get right now.
Big payout for exchange as it books Goldman
A PS on the Betfair shenanigans. Look who's on the list of banking advisers. That's right, it's Goldman Sachs.
Back when Goldman was a respectable company, before its flotation and the rise of its trading arm, it was the first port of call for companies with unwanted bidders banging on their doors.
Goldman specialised in fending off such approaches, and it was very, very good at the job. There were no guarantees but directors knew that if they had "the firm" on their side, they stood a chance.
It was partly for this reason that Goldman became so powerful and was held in such high regard. So is this a case of "back to the future" for the bank?
Hardly. Betfair will be paying through the nose for Goldman's help. But its fee will be nothing more than a drop in a vast ocean where the waves are still being made by traders.
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