I'm sorry, but I just don't get it. Why would shareholders in ITV want to pay out some £200m in fees to Goldman Sachs, Apax and various hangers on for the only obvious purpose of bringing Greg Dyke back as chief executive? If this was such a great idea, the ITV board would surely do it themselves.
Despite the fact that this curiosity of a buy-in proposal apparently has the support of ITV's biggest shareholder, Fidelity, you don't need a PhD in finance to see why directors haven't exactly been falling over themselves to accept.
Mr Dyke has an outstanding track record as a broadcaster, but for obvious reasons he is loathed at No 10 and the Department for Culture, Media and Sport. Both will fight tooth and nail to deprive him of another big job in the British media, particularly one they might still hold some sway over.
This hostility doesn't obviously equip Mr Dyke well for the task of negotiating further concessions in ITV's public service broadcasting obligations or in contract rights renewal. Yet he needs to make big inroads into both if his business plan is to stand any chance of success.
To achieve higher advertising revenue while coincidentally taking the axe to the programming budget might seem an impossible enough task. To do this at a time of deep structural change in the industry makes it positively Herculean. Weighed down by the debt leverage taken on to pay shareholders their special dividend, it's not clear that even the mighty Mr Dyke is up to it.
Mr Dyke took ITV to the cleaners while he was at the BBC, but the playing field was hardly a level one. While Mr Dyke enjoyed the luxury of an inflation-proofed programming budget, ITV had to grapple with both a fragmented corporate structure and a deep recession in the advertising market. There's no doubting Mr Dyke's creative flair, but can he really claw back ITV's lost audiences on a diet of cheap, imported American pap? Somehow I doubt it.
The frustration investors feel with ITV is understandable. The share price has gone nowhere for five years now, despite the concessions and cost cuts achieved as a result of the creation of a single ITV. Meanwhile ITV1's position relative to the rest of the market has continued to slip precipitously. Yet financial jiggery-pokery, which is essentially what this amounts to, is not the answer.
For their £1.3bn, the consortium gets half the equity for what would buy them little more than 20 per cent if they were to use the same funds to buy the share capital as it now stands. Existing shareholders get 75 per cent of their money back as a special cash dividend, and an ongoing interest in the extraordinarily highly leveraged vehicle that is left. They should be under no illusions. The 75 per cent cash back is not Goldman's money; it is their own.
The consortium bills the proposal as a way for stock market investors to participate in the rewards of leverage, normally the exclusive preserve of private equity. The reality is that private equity has been encountering growing resistance to the prices it is willing to pay for publicly listed companies; to get shareholders to the negotiating table, it must try other ploys.
If the consortium were to pay the premium necessary to acquire ITV outright, it couldn't make the numbers work. Mr Dyke needs existing shareholders to participate in the enterprise to make the whole thing fly, and if he can persuade them, he avoids paying the usual takeover premium to boot.
I may have to eat my words, but I cannot see any reason shareholders would go for such a confusing and operationally dangerous proposal. Mind you, now that the idea has been raised, the ITV board has no option but greatly to improve on the £300m capital return already promised. Goldman had the idea, someone else takes the fee for implementing a lesser version. How unfair, yet somehow the world's most profitable investment bank will manage to muddle through.
'FT' man to be the voice of business
The contrast with Sir Digby Jones, who has done a brilliant job in modernising and raising the profile of a once moribund organisation, could hardly be greater. Even so, Richard Lambert is an excellent choice to succeed him as director-general of the Confederation of British Industry. The two are chalk and cheese - the incumbent an ebullient, opinionated and table thumping demagogue, his successor cerebral and considered, a quiet man of ideas.
Mr Lambert's style will therefore be a very different one. It's hard to imagine Mr Lambert moving himself, as Sir Digby frequently did, virtually to the point of tears when talking of his pride in British business. Yet his commitment and passion should not be doubted, and he ought to be no less an effective operator.
A lifetime spent observing and writing about the intricacies of business gives him a deep understanding of its needs and challenges.
Mr Lambert's reputation as some kind of New Labour camp follower belies the reality. As a successful national newspaper editor, it was his job to seek the company of the powerful, rich and famous, but though that might make him more influential, it will not have affected his independence or judgement. When appropriate, he won't hesitate to give it to the Chancellor with both barrels. His modus operandi will nevertheless be to persuade, not to condemn.
The CBI said recently that relations between business and government had reached a point of no return. Enough was enough. This was an error. Whatever your views - and in my experience they are as diverse within the business community as in society at large - it's nearly always better to be inside the tent arguing the case than outside handing out leaflets. At least then you stand some chance of getting your voice heard.
To condemn this Government as presiding over some kind of economic road crash, as some business and City leaders are prone to, finds little resonance with the population at large - with good reason, for most of us are much better off than we were 10 years ago. Yet there are real issues on tax, red tape, pensions, energy and competitiveness which threaten to reverse this good fortune. There are few better equipped than Mr Lambert to press the right policy agenda.
British Airways grasps pensions nettle
British Airways has come up with a fair and sensible set of proposals for addressing its pensions crisis. Provided the workforce is rational about it, strike action ought to be avoided. Members take £450m of pain through later retirement and reduced benefits from future accruals, while the company coughs up £500m of cash to help further close the deficit.
Combined, these two measures ought virtually to clear the actuarial deficit as recorded by the last valuation, but will still leave the company with an accounting deficit under FRS 17 of approximately £1bn. So the problem isn't entirely removed. All other things being equal, the company will need to make further top-up payments to achieve the pension regulator's demands that deficits be completely eradicated within 10 years.
With some £12bn of total pension liabilities, BA continues to look more like a giant pension scheme that happens to have an airline tacked on to it than an airline with a pension scheme.
Whether yesterday's proposals are enough to return the company to investment grade remains open to question. Willie Walsh has already set out targets for achieving the operating margin which is one of the preconditions. The continued FRS 17 pension deficit may hamper his efforts in other respects.
If all airlines suffered under the same burden, then Mr Walsh could rest a little easier in his bed. Unfortunately, the low cost airlines have no such pension liabilities to hold them back. As for the fast growing airlines of the Middle East, they have no cost of capital either, and very probably subsidised jet fuel to boot. Yesterday's proposals, assuming they are accepted, will ease the headwinds a bit, but they won't remove them.Reuse content