Despite initial scepticism, the merger of National Grid with the gas pipeline business Transco has proved a runaway success. Roger Urwin, the chief executive, is delivering just as he promised, and then some. Perhaps ironically, however, he's had to sell a large slug of the business he bought in order to demonstrate it. When National Grid bought Transco, then known as Lattice, the company's share price was still trading at a substantial discount to its underlying, regulated asset value.
Yesterday's disposal of four of Transco's regional distribution companies for £5.8bn is at a 20 per cent premium to that value (or 14 per cent by the time the deal reaches completion next year). This gives some idea of the scale of the cost savings Mr Urwin has managed to squeeze from the business since he took control. Yet if others are prepared to pay a premium, it must mean the cost cutting possibilities are still a long way from being exhausted. So why's he selling?
In part, it's to put a value on the work he's already done. But it is also because National Grid Transco was beginning to run into problems of diseconomy of scale. It has proved impossible to run all eight regional distribution companies off a single business platform. What National Grid keeps is of more manageable size - accounting for about 50 per cent of the operating profits but covering only 26 per cent of the country by geographic area. The backbone, high pressure, gas transmission business, a perfect match for National Grid's electricity transmission infrastructure, is also retained.
Three of the four distribution companies are being sold to consortia that include geographically matched electricity distributors, making possible potentially very substantial management synergies. So everyone's a winner then? That's rarely the case in business. In fact, it is highly probable that at least one of the bidders has overpaid and won't be able to deliver the efficiencies necessary to justify the premium.
Still, that's not Mr Urwin's problem. Mr Urwin considered resigning when he was embarrassingly outed at the company's annual general meeting a year ago as being engaged in an affair with one of his employees. Fortunately for shareholders, he didn't. As far as we know, he's kept his trousers on since then and investors can now look forward to a bumper special payout of £2bn as well as a 20 per cent hike in the dividend.
After paying down debt to restore the ratios to where they were, Mr Urwin plans to spend the rest on further extending National Grid's presence in US energy markets. The US has historically proved a graveyard for successful and unsuccessful British companies. America makes no distinction in taking naive Brits for a ride. Yet National Grid has already been there for some time, and so far there's been little sign of it coming a cropper. Surprisingly, Britain seems to be a better manager of energy distribution businesses than America. In any case, investors will find it hard to deny Mr Urwin his US adventure given what he's already achieved.
"This is the story of how Hollinger was systematically manipulated and used by its controlling shareholders for their sole benefit, and in a manner that violated every concept of fiduciary duty ... Hollinger went from being an expanding business to a company whose sole preoccupation was generating cash for the controlling shareholders, with no concern for building future enterprise value or wealth for all shareholders ... Black and Radler made it their business to line their own pockets at the expense of Hollinger, almost every day".
It would be hard to conceive of a more damning indictment of the management of a publicly quoted company than the one heaped on Lord Black of Crossharbour yesterday by the special committee set up by Hollinger International to investigate the fees the company paid to its former chairman. Even Robert Maxwell didn't officially get it in the neck as badly as this, though that perhaps owes more to his timely death than the scale of his wrong doings.
Yet there is worse. "Events at Hollinger were driven by insatiable pressure from Black for fee income from Hollinger to ... satisfy the liquidity needs he had arising from the personal lifestyle he and his wife had chosen to lead ... Hollinger was a victim of Black and Radler's ravenous appetite for cash ... there was an overwhelming record of abuse ... and violations of fiduciary duties by Black and Radler ... ethical corruption was the defining characteristic of the leadership team". And finally, just in case you hadn't got the committee's drift: "The special committee knows of few parallels to Black and Radler's brand of self-righteous and aggressive looting of Hollinger to the exclusion of all other concerns or interests".
Lord Black is already paying a heavy price for his skulduggery. He's lost his business, his lifestyle, his wealth, his position in society, his friends in powerful places and his reputation. Few will want to read his biography of Franklin D Roosevelt, well crafted though it is, knowing that the archive on which it is based was paid for not by Lord Black, but by Hollinger, and then used to decorate and impress at his personal residences in Palm Beach and New York.
With Lord Black ousted, and his former newspaper empire, including The Daily Telegraph, being broken up, he'll want yesterday's report to be seen as already falling into the category of historic interest. Regrettably for him, this is unlikely to the case. For the time being, Lord Black at least retains his freedom. Reading this catalogue of misdeamours, you have to wonder for how much longer. A veritable posse of taxmen and sheriffs will be riding after him on reading yesterday's extraordinary tome.
This is public vilification on a scale Lord Black could scarcely have dreamed of, even in nightmare. His wife Barbara Amiel, comes out of it almost as badly as he does. If he is not a broken man already, this will surely break him. And if further ammunition were needed for the wall of litigants coming after him, the special committee delivers it by the lorry load.
The scope and arrogance of Lord Black's pilfering is quite breathtaking. My personal favourite is the Park Avenue apartment swap, where the Blacks' property is credited with a 70 per cent appreciation, but the much more expensive Hollinger apartment is afforded no appreciation at all, even though it was bought six years previously and is in the same block. Now that really is playing the property market.
Conrad Black's underlying fault was that he attempted to live a billionaire's lifestyle off what was essentially a quite small business. Furthermore, Hollinger had outside shareholders, even if Lord Black seemed to be entirely oblivious to their existence. His greed has finished him off. He's another Melmotte. Still, as Neil and Christina Hamilton have proved, when all else is lost, there's still a career in reality TV to fall back on - once he's served his time, that is.
¿ British Energy
Two years ago, British Energy was so comprehensively bust that it had to go cap in hand to the Government for a bailout. Today, its bonds trade at £1.70 in the pound, suggesting that far from being bust, it is a once more thriving enterprise. What's happened in between is that the wholesale price of electricity has recovered to levels that again make the nuclear power generator a bankable proposition. Unfortunately, bond holders have also in the meantime pushed management into agreeing a debt for equity swap which will all but wipe out current equity holders.
The only reason the refinancing hasn't already been enacted is that EU approval for the state aid involved is still pending. A deal that possibly looked justifiable when British Energy was in the distressed state that ruled with low electricity prices today looks like a complete steal. That's what the price of the bonds suggests in any case. A group of large shareholders yesterday formally requisitioned management for an extraordinary general meeting so as to secure a better deal. From where I sit, it looks a hopeless cause, as the company has already signed a binding agreement with creditors to do what's already been agreed. Nothing wrong with trying, though.Reuse content