Jeremy Warner's Outlook: Matalan's minority shareholders squeezed by Hargreaves between rock and hard place

BP's carbon-offset scheme: just PR?; The rise and further rise of private equity
Click to follow
The Independent Online

John Hargreaves, chairman and founder of Matalan, long ago gave up talking to journalists like me, so in the absence of any more than nods and winks from his various emissaries, you can take the following with a large pinch of salt if you like.

Yesterday Mr Hargreaves was finally prevailed upon to put a price - 200p a share - on the attempt to buy out the 47 per cent of the discount retailer he and his family don't already own, though he retains the right to bid less and has extracted a month's extension from the board of the put-up-or-shut-up deadline they gave him to come up with the money.

One of Matalan's largest outside shareholders, Harris Associates, has already said it wants 300p a share, so it might reasonably be assumed the Hargreaves proposal is a non-starter. He's the chairman and founder, yet he still wants more time to examine the books. How much time do you need if you already know them back to front? The explanation seems to be that until Barclays Capital, his financial backers, know how the autumn ranges are selling, they are reluctant to commit even 200p a share, let alone anything higher.

The independent directors have indicated they would recommend anything with a 2 in front of it. In going for the lowest number that has one, Mr Hargreaves has opted for the bare minimum, but there is presumably still some possibility of him being negotiated up.

In any case, the 62-year-old entrepreneur has threatened to vote against the current dividend policy should the board refuse him, claiming that profits are not high enough to support the dividend at the present level. How it is that profits are not high enough for this but are apparently high enough to finance a leveraged buyout is another mystery left entirely unexplained.

Mr Hargreaves is holding a gun to the company's head. Accept or the dividend gets it. In any normal company he'd be asked to resign. His behaviour is outrageous. But with 53 per cent of the stock, there's not a lot of point in non-executives attempting to lay the black spot on him. They'd be laughed out of court.

Mr Hargreaves' emissaries again present him as rowing back a bit on his dividend threat. He didn't mean it quite like that, they insist, yet the message is doing its work just as intended.

Mr Hargreaves is only part of a growing list of retail entrepreneurs who want to take their companies private. Some of them, notably Lord Kirkham of DFS, have already succeeded. Few of them seem willing to stick with the stock market, where they are proving only fairweather friends, desperate to avail themselves of its benefits on the way up but apparently unwilling to obey its disciplines on the way down. Being part of a minority is rarely a happy disposition. At Matalan, it is proving particularly uncomfortable.

BP's carbon-offset scheme: just PR?

Can any big oil company ever hope to enter the ethical branding game? Any attempt to do so is likely to fall foul of the charge of hypocrisy, as BP knows to its cost on account of its much ridiculed "Beyond Petroleum" campaign. The idea was to rebrand the company as an all-round energy supplier which might in time be as much into renewables, or even nuclear, as petroleum.

The rednecks of the industry, Exxon Mobil, immediately heaped scorn on any such notion, and with some justification too. Exxon is a hydrocarbon company and proud of it, the CEO, Lee Raymond said. Nothing more, nothing less.

He was, of course, right. Oil companies know everything there is to know about oil, but they nothing at all about running nuclear power stations, or even wind farms, and as a result would be almost certain to fail in the endeavour. In preparing for the day when the oil runs out or the politicians curtail its use, they need only think about how best to wind themselves up in a capital efficient manner.

In returning for a second bite at the ethical branding cherry, BP approaches the problem from a more promising direction. "Targetneutral" is in truth just another carbon-offset scheme, of which there are already legion, but the fact that it is an oil company which is promoting the idea makes it a great deal more intriguing than most.

A new website allows you to calculate exactly what your carbon emissions from driving a car might be, and then by making a payment - which would be about £20 a year on average - to offset that effect through CO2 reduction projects.

The whole thing is voluntary, so in the round the effect is likely to be marginal. What makes it interesting is that BP is in effect encouraging you to pay not to use its product, as every pound spent on emission reduction displaces an equal amount of carbon producing oil. This must be something of a first in the history of global capitalism.

A cynic would say that it is not an act of altruism at all, but one of unbridled self interest. By launching targetneutral, BP hopes to improve its image, even if Big Oil and saving the planet seem a contradiction in terms.

The other way of looking at the initiative is that BP is only pre-empting what regulators will in any case eventually make mandatory: it has long seemed to me that a carbon tax hypothicated against carbon reduction is the only way of seriously getting to grips with climate change.

BP is in one of those terrible down phases in its public relations right now which from time to time afflict all big oil companies. In terms of its image, if not its finances, everything seems to be going wrong at the same time. This is particularly the case in the US, where failure to tackle corrosion in a timely fashion in pipelines servicing the Prudhoe Bay oilfield in Alaska has led to a partial shutdown, greatly exacerbating the spike in petrol prices on the West Coast of America.

The US is not yet ready for schemes like this, particularly when proposed by the current bête noire of the industry. So for the time being, it is being confined to the UK market. Yet it may in time be seen as an important harbinger of the profound change likely to be forced on this industry over the years ahead.

The rise and further rise of private equity

As our news analysis on page 40 highlights, recent deals have demonstrated there are no longer any limits on size in the leveraged buyout market. Nothing is too big for today's private equity players. The rising ambition of private equity raises the mirror question of the declining importance of the traditional, joint stock company listed on the London stock market. A growing number of our more important companies are becoming private equity or foreign owned.

As fast as the private equity players have been buying in, Britain's biggest long-only investors - the pension funds and life assurers which have traditionally been the main support for the UK equity market - have been selling out. The other big change to have occurred in the capital markets over the past 10 years has been the rise of the short-term traders, or hedge funds.

Unencumbered by the concerns of long-term value, they too have been buying into the stock market as fast as the long-only investors, driven by solvency worries, have been selling out. This has further unsettled the share registers of even very substantial companies, making them yet more vulnerable to private equity bids or alternative break-up proposals.

There's nothing that can be done about this, nor should there be. It's just part of the evolution of modern capitalism. This is the brave new world we now live in. As a result, all the best City talent, the people would have been employed in traditional fund management, are heading instead for private equity and the hedge funds, where the rewards are much higher.

In the process, a massive transfer of wealth and value is taking place. Regrettably, it is in the main from the many - the ordinary saver - to the few - the smart hedge fund or private equity player and his backers.

j.warner@independent.co.uk

Comments