Not before time, the Takeover Panel has set a deadline for Philip Green to put up or shut up over his bid for Marks & Spencer. The jostling for position has gone on for long enough, and even Mr Green concedes that the 6 August cut-off point the Panel has imposed is reasonable enough, being a full 70 days after he originally declared his hand. It also gives Mr Green plenty of time to absorb the contents of Stuart Rose's promised operational review, which is due to be unveiled on Monday. M&S should not, and now cannot, be laid siege to indefinitely.
So what is Mr Green likely to do? For what it's worth, here's my prognosis. Mr Green insists that he cannot finance the bid blind, notwithstanding the fact that he has also said he has firm commitments from his financiers. If this is indeed the case, then I fear his number is up. There is no reason for M&S to open its books to him at anything south of £4 a share, and I suspect the board would find support from its shareholders for turning him down even at this level. There is no rule that requires a company to give a hostile bidder rights of access at the wrong price.
But actually, Mr Green is quite capable of bidding blind, and assuming the present mutterings of discontent among his backers are no more than pre-battle nerves, I'm convinced he will. The costs of such a gamble are comparatively small, as the bulk of the debt is being provided by the equity participants, who therefore will not feel inclined to charge themselves the usual commitment fees. There may be some cost involved in hedging the interest rate, but this is unlikely to be off the scale.
So Mr Green is more likely to put up than shut up, particularly if at, say, £4 a share, he can gain the support of Brandes, M&S's largest shareholder. Mr Green is desperate to have Marks & Spencer. Indeed, he's determined to have it, so that he can once more cock a snook at City investors by taking a valuable asset from them at a fraction of its real worth. However, this is when Mr Green hits his first real obstacle. Contrary to City expectations, the bid is highly likely to be referred to the Competition Commission. In lingerie alone, M&S combined with Bhs and Arcadia would have about 35 per cent of the market, which is all the excuse the Office of Fair Trading, with its present predilection to refer anything that moves, needs to act. Add in Treasury concern about the potential for loss of tax revenue, and the Government's mistrust of the offshore nature of Mr Green's business empire, and a reference seems to me a racing certainty. What then?
So far Mr Green has had the ring to himself. Don't discount the possibility of rivals.
Gilbertson/Vedanta
As fat cattery goes, they don't come any more feline than Brian Gilbertson, the now ex-chairman of Vedanta, the Indian-based but UK-listed mining company. Mr Gilbertson is one of the mining world's more colourful and abrasive characters, which for an industry filled with swashbuckling practitioners is saying quite something. Tough and aggressive, it's anyone's guess whether he is actually any good. What is true is that he loves a deal, which has been his trade mark during nearly 40 years in the industry. His daily arrival by private helicopter on the roof of Billiton's Johannesburg headquarters used to be greeted by staff with the irreverent line, "the ego has landed". A big ego commands a big price and, whatever his skills as a chief executive, Mr Gilbertson was certainly an expert in looking after his own pocket.
Change of control clauses triggered by the merger of BHP and Billiton won him his first fortune, even though it was in effect Billiton that was taking over BHP. A second lottery-style winning came when he was fired shortly afterwards. So gigantic was the pay-off and accrued pension rights that they prompted an official complaint from the Australian government, which tried unsuccessfully to have them blocked.
Then came Vedanta, where Mr Gilbertson was persuaded aboard by a £7m golden hello in order to give the company gravitas and goodwill among investors in the run-up to a London flotation. The association has lasted little more than six months, and although it might have been effective in getting the IPO away, it has been extraordinarily bad for investors. The shares have been in free fall from the moment they were floated, bedevilled by worries over accounting practices and the change of government in India.
When Mr Gilbertson let it be known he was planning to take up an executive position with Sual, a rival aluminium producer, for a package reportedly worth $50m, Vedanta's founder, Anil Agarwal, understandably went ballistic. The two companies don't compete directly as things stand, but they are more or less bound to find themselves in conflict at some stage.
I'd be urging investors never to allow Mr Gilbertson to darken the doors of a publicly quoted British company again after all that's happened, only I'm afraid to say it is already too late. Sual, one of Russia's leading aluminium producers, is also planning a London listing.
Does Victor Vekselberg, the Russian oligarch who controls Sual, fully understand what he's buying? Mr Gilbertson's greed means he has lost much of the goodwill he once carried with ordinary investors. On the other hand, Mr Vekselberg needs all the respectability he can buy, with Yukos standing as a warning to all of the precarious nature of Russian wealth and assets. Mr Vekselberg is one of three Russian oligarchs who, to the dismay of London investors, are trying to rewrite the terms of their Siberian oil deal with BP. Like Vedanta, Sual needs a name to give its flotation legs, but is Mr Gilbertson the man for the job?
Willetts/pensions
David Willetts, the Shadow Work and Pensions Secretary, exaggerates his case when he says the pensions crisis is up there with terrorism and global warming as a threat to Britain's future. And while he makes a valuable contribution to the debate, he fails to propose anything like a workable solution. Pensions are one of the biggest long-term public policy challenges of our age, but they hardly pose a threat to the future of our islands, in the way that terrorism or climate change do. The pensions crisis will eventually be dealt with by people working longer or living on less in retirement. There are no other solutions, absent of those in work being persuaded to pay a lot more in tax. All the rest is agenda-led politicking around the edges.
What Mr Willetts wants to do is raise the basic state pension to a level that will allow future governments to get rid of means tested benefit, which in a keynote policy statement this week, he rightly points out is a big disincentive to saving. He would achieve this by restoring the earnings link to the basic state pension (BSP) - something which ironically one of his predecessors under the Thatcher Government abolished. At the same time, the minimum income guarantee (MIG) - the main form of means tested benefit for pensioners - would be left indexed only to prices. Because earnings rise faster than prices, the BSP would eventually catch up and overtake the MIG, making the MIG redundant.
This is precisely the reverse of what the Chancellor is doing. Under Labour, the MIG is indexed to earnings but the BSP only to prices. The effect is steadily to reduce the size of the BSP relative to earnings, but for the MIG to grow in line with them. Labour's approach is that of targeting state benefit at those who really need it, leaving the better off to provide for themselves. Mr Willets wants to get into a position where people are forced to save if they want income over and above the basic state pension.
There are a number of problems with his approach. One is that people who are on the MIG will get progressively poorer in the short to medium term. Another is that at just 16 per cent of national average earnings, the BSP is still not enough to live on, leaving many of the 20 million who make no private pension provision below the breadline. A third is that maintaining the earnings link on the BSG over a very long period of time without raising the age of entitlement will require eventually unaffordable levels of government funding. And so the objections multiply. These are mind bogglingly complex issues, which even Mr Willetts' famous two brains have failed to steer a clear course through.
Comments