Jeremy Warner's Outlook: As AB Ports comes under the hammer, shouldn't scramble for British assets tell us something?

The City: a thing to be left well alone; Portillo: past his sell by date?
Click to follow
The Independent Online

The scramble for UK companies continues apace, with funds controlled by the Singapore government snapping up an 11.5 per cent stake in Standard Chartered and emerging as a key player in a potential £2.3bn bid for Associated British Ports Holdings.

The scramble for UK companies continues apace, with funds controlled by the Singapore government snapping up an 11.5 per cent stake in Standard Chartered and emerging as a key player in a potential £2.3bn bid for Associated British Ports Holdings.

For Mervyn Davies, the chief executive of Standard Chartered, news of Temasek's investment will come as a relief. The stake has been up for grabs ever since the Malaysian tycoon Khoo Teck Puat died two years ago. Going back many years, he'd helped thwart a series of takeover attempts on Standard Chartered. With his passing, there was plainly a danger of the stake falling into unfriendly hands again.

Temasek, on the other hand, is likely to prove a largely passive and supportive shareholder. Run by the wife of Singapore's Prime Minister, Ho Ching, Mr Davies knows the investment vehicle well. It seems unlikely Temasek would want to buy the whole bank, but if the price is right, who is Mr Davies to object?

The Singaporeans may not be able to rely on such a friendly reception at AB Ports, which judging by the body language is shaping up to reject any offer pitched at 740p a share or less. This is roughly double where the shares were a year ago, and so far ahead of the 230p a share offered by Guy Hands back in 2000 that you'd think it was a completely different company.

At 740p, the exit multiple also isn't so very different from the one P&O was recently sold for. In theory, P&O should be worth more, since it has had a genuinely global footprint and was the subject of a takeover battle by rivals, so surely 740p ought to be enough to do the trick at AB Ports. Not so fast, says AB Ports: we've proportionately got a lot more property than P&O and our growth prospects are just as good.

Even two years ago, nobody would have listened. Shareholders would have bitten the consortium's hand off to accept. It is symptomatic of how much things have changed that today the consortium is by no means assured of success at this price.

Looking at the make-up of the consortium ­ all essentially pension fund investors looking for appropriate infrastructure investments to fund their long term liabilities ­ shareholders need to ask themselves a basic question: if these pension fund investors are prepared to pay so handsomely for port assets, with all the fees the infrastructure fund managers will take out along the way charged on top, then perhaps they might be worth keeping for themselves.

Not that the "Project Admiral" bidders and their like should be discouraged. If nothing else, the wave of private equity bids we've seen in the stock market over the past three years has helped highlight its underlying value, as well as galvanise managements into more aggressive use of their balance sheets. This in turn has helped drive the spectacular returns we have seen from UK equities these past few years. Long may it last.

The City: a thing to be left well alone

When something is already a rip roaring success, it might seem best just to leave well alone. Yet the Chancellor cannot resist the temptation to tinker and, with this in mind, he's setting up a task force together with representatives of the financial services industry to ensure that the City, now indisputably the world's largest centre for international financial services, remains at the top of its game.

This is an extraordinarily bad idea, or at least, it would be if the intention is anything other than that of stopping the Government from doing anything stupid. Since when was that ever the purpose of Government committee?

The City has to date thrived regardless of the Government, or even despite it. Any attempt through public policy to bolster London's position as a financial centre would almost certainly end in tears. The best the Chancellor can do for the City is simply stay out of its way.

Fortunately, the Treasury document published with the Budget last week on the future of the City ­ Financial Services in London: Global opportunities and challenges ­ seems to suggest just that. In listing London's competitive advantages, conducive tax and regulation are judged to be right up there with language, critical mass, product innovation, and the rule of law. Few would disagree that these are key ingredients to success in financial services.

Yet as ever, the Government's actions don't match the rhetoric. In both regards ­ tax and regulation ­ the record is mixed. One of the reasons the City is so successful is that there is a high degree of trust put in the integrity of its markets, people and systems.

When dealing with the City, you don't have to check your wallet every time you leave the room, as you do in many of its would-be rivals. The City has some of the most honest and efficient markets anywhere in the world. This is largely down to the quality of its people and organisations, yet the Financial Services Authority can claim at least some of the credit. As a regulator of wholesale financial markets, it is streets ahead of anywhere else in the world, having managed to get the balance on regulation about right ­ not too much, but not too little either, with a high degree of reliance placed on the ability of firms to regulate themselves.

Regrettably, the same cannot be said of retail financial services, where ineptly conceived consumer protection and compensation have led to oppressive levels of sales and solvency regulation. The City's success is in wholesale financial services. There is no evidence to suggest our retail financial services industry is any better than anywhere else. To the contrary, we lag Europe in the development of decent retail savings and banking markets.

As for taxation, the Government again talks the talk but fails to walk the walk. London still has one of the most benign and conducive tax regimes anywhere in the world for wholesale finance, but it is under attack through a growing panoply of anti-avoidance measures which add to the overall tax burden faced both by corporations and individuals.

Knowing the damage it would do to London as a financial centre, not to mention as a home to the world's super rich, the Government has so far held off interfering with the extremely favourable tax treatment of non-domiciled UK residents. Yet it is threatening to junkthe tax privileges of private equity.

The Budget document gleefully records that 70 per cent of European private equity investment is conducted from the City. Not for much longer if there's a tax clampdown on the industry. The same might be said of hedge funds, where other jurisdictions are rushing through tax breaks to lure hedge fund managers away from London.

The Chancellor is right to think of London's position as a fragile one that needs to be nurtured. Yet fine words cost nothing. It's actions that count. If the task force limits itself to persuading the Chancellor that he should keep his hands off the City, then it will have performed a worthwhile service. Now why does that seem so unlikely?

Portillo: past his sell-by date?

What an honourable chap Michael Portillo must be. So as to be free to speak his mind in his blossoming media career, the former defence secretary is giving up his position as a non executive director of BAE Systems, Britain's largest defence contractor.

Mr Portillo is a regular political commentator on Andrew Neil's This Week programme, and he also writes a column for The Sunday Times. If you work in the media, try as you might, you are bound eventually to say or write something which runs counter to the interests of a company as large and controversial as BAE. If you are also a director of that company, then the embarrassment caused is likely to be considerable.

Yet if Mr Portillo hadn't jumped, there's a strong possibility he would have been pushed. It's many years since Mr Portillo was Secretary of State for Defence and nearly a year since he was an MP. He must long since have lost all value to BAE Systems.

Most of his contacts, both here and abroad, will have moved on, and even his knowledge of the workings of the corridors of power would now only be of historical interest. There should be more jobs in British industry for us columnists, but I fear our craft is best practised as outsiders, not insiders. BAE will no doubt share that view.

j.warner@independent.co.uk

Comments