Jeremy Warner's Outlook: Questions multiply on Cowdery/B&B
Wednesday 25 June 2008
Poor old Rod Kent. He could scarcely have imagined the mess he was walking into when he left Close Brothers to become chairman of Bradford & Bingley. Nobody would say he's handled it brilliantly, but, given the hand he was dealt, could anyone have done better?
The much-criticised Texas Pacific Group (TPG) deal was in fact the right and possibly the only thing Mr Kent could have done at the time he signed up to it. After the fiasco of the bungled rights issue, Bradford & Bingley urgently needed a confidence-boosting infusion of new capital if it was to avoid going the same way as Northern Rock. TPG provided the necessary certainty.
Now along comes Clive Cowdery with a proposal which on the face of it is better for shareholders than the Texas Pacific deal. Mr Kent has a duty to do all he can to facilitate this deal, and so do his advisers, Goldman Sachs, who embarrassingly have a vested interest in the Texas Pacific transaction since they introduced the company and have done numerous transactions with TPG in the past. At the very least, they must allow Mr Cowdery his due diligence.
Yet at the same time, they cannot in assisting Mr Cowdery come up with the goods do anything that might jeopardise the TPG backstop. The dangers of being left with nothing at all are all too obvious. It's a difficult tightrope to walk. TPG shows no sign of walking away, but the American private equiteers thought they had a deal and now they might not. They are not exactly happy with developments.
For the time being, there are more questions than answers about Mr Cowdery's "offer". Two of his four backers – Prudential and Standard Life – are not simply Bradford & Bingley shareholders keen to secure a better deal.
In fact they were original seed investors in Mr Cowdery's Resolution from the days when Mr Cowdery set forth on his crusade to consolidate the struggling life insurance sector. In other words, they are long-standing fellow travellers. As such, is not the offer of £400m of new equity for 49 per cent of the company just a straight bid for control by what is in effect a Cowdery consortium?
Mr Cowdery promises existing shareholders first rights of refusal on the new stock, and reasonably points out he was forbidden from making the group bigger before going public by the Takeover Panel, which feared the plan would leak.
Yet with the buy-in as proposed pitched at above the market price, it seems unlikely others will be queuing round the block to join the capital raising. Most shareholders thus face a considerably more substantial dilution than with TPG. If Mr Cowdery and his partners are in fact taking control, shouldn't they be forced to pay a bigger premium for it?
What's in it for Mr Cowdery? What sort of private equity-style kicker is he going to be on in attempting to repeat with the banking sector the consolidation he achieved in life assurance?
Whatever the answers, Mr Cowdery has very little time to come up with firm proposals. If he's not got committed funds on the table by 7 July in a manner the board feels able to recommend, investors will have no option but to vote the TPG deal through. Shareholders risk repeating the mistakes of Northern Rock, when in an effort to secure more they ended up with nothing at all.
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