Jeremy Warner's Outlook: Pidgley puts his money on urban regeneration

HBOS/Stevenson; A word in your ...; Drug discovery
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The Independent Online

Honey, I shrunk the company. Over the years, Tony Pidgley, chief executive of Berkeley Group, has established himself as one of the housebuilding sector's most astute operators, having successfully predicted the top of the last housing boom and acted accordingly. So whenever he engages in a shift of gear, we should sit up and take notice.

Unlike almost everybody else, he's not this time saying the housing bubble is about to burst, but he is by implication suggesting a decided shift in the market. Yesterday he revealed plans to exit conventional housebuilding, allowing the company to release £1.4bn of capital to its shareholders over six years, £600m of it in the next year alone. Instead, he intends to concentrate on apartment building in brownfield inner-city sites.

The competition in tradition housebuilding has intensified in the last few years. For Mr Pidgley, costs are rising faster than his prices. Rather than invest profits back into expensive land acquisition and further greenfield development, Berkeley instead plans to run down that side of the business and give the money back to shareholders.

The effect on the share price, which surged nearly 30 per cent yesterday, was electric, and just goes to show that shrinking a company is often a lot better for shareholder value than investing in its long-term future. Yet Mr Pidgley isn't intending to quit the sector entirely. Rather he intends to focus on brownfield inner city development of big apartment blocks.

In Mr Pidgley's view, this is the place to be. It's more complex, requiring greater expertise than conventional housebuilding, and therefore less competitive. Though it might appear counter intuitive to be building in the inner city when everyone seemingly wants to move out of it, Mr Pidgley may be on to something. At both ends of the age spectrum, young and old, there's a big demand for smaller space, no-bother, modern accommodation. As the town flat for visits to the big city it is ideal, while it can also be made just about affordable for first-time buyers. The obvious risk is the high number of buy-to-let investors who buy these properties (about 50 per cent of such apartments are bought for investment purposes). That's powerfully indicative of speculative activity. Even so, it plainly doesn't pay to bet against Pidgley.


The Association of British Insurers no doubt reflects a particular City point of view in writing to HBOS to complain about the role of its chairman, Dennis Stevenson, in Philip Green's bid for Marks & Spencer, yet it is an extraordinarily blinkered one. The ABI is concerned about the potential for conflict of interest if, as agreed, Lord Stevenson acts as the senior independent non-executive director in a Philip Green-controlled M&S when HBOS would be a primary lender to the company.

In fact, one of the key attributes of a decent non-executive director is that he is able to handle such conflicts. No director worth his salt is going to be entirely conflict-free. If he were we would live in a world where no one was allowed to do more than one job, which is impractical and counterproductive.

There is absolutely nothing wrong with straddling the roles of both borrower and lender, which happens all the time in business. In some countries it is thought of as a positive necessity that the lender is represented on the board of the borrower. Not that Lord Stevenson would be there to represent HBOS's interests. Rather, his function would be to recruit the rest of the board and give the City comfort of adequate corporate governance safeguards.

Yet it remains something of a mystery as to why Lord Stevenson has agreed to hitch his wagon to the Philip Green bulldozer. There appears to be nothing in it for him at all. To the contrary, as the ABI letter has already highlighted, the effect is all downside. By lending his name to Mr Green's endeavour, he's already damaged his reputation in some quarters of a still fiercely tribal City. So why?

I can only offer the following explanation. Lord Stevenson first came across Mr Green at a private Bank of Scotland (part of HBOS) dinner last year and, like most of those who meet this high-adrenaline mix of energy, determination and chutzpah, he was blown away. Mr Green was there to rebuild bridges. That morning he had been extensively quoted in The Guardian, not a newspaper he shares many values with, and as is his wont, he'd spoken his mind. Indeed it was the usual torrent of abuse, combined with some bizarrely disparaging remarks about the Irish, among whom he counts some good friends. He'd made a complete fool of himself and wanted to apologise in person for his stupidity to his most supportive bank.

Over dinner, this most unlikely of relationships - the one suave, sophisticated and extraordinarily well connected, the other brutish, loud and profane - was forged. Mr Green was already a doyen of private equity, having made huge sums of money out of assets that had defied the management skills of a string of predecessor owners. He truly seemed an alchemist. Lord Stevenson quickly became convinced he could do the same with M&S. Reducing the supply chain, squeezing out the middle man, taking great chunks out of working capital - it wasn't rocket science but nobody seemed to do it as effectively as Mr Green.

Is Lord Stevenson getting a cut of the action for his trouble? I've no idea, but I'd be surprised if he was. Then he might indeed be open to the charge of conflict of interest and that's not his style. No, he's doing it primarily because he genuinely believes in Mr Green. A temporary loss of judgement? Only time will tell.

A word in your ...

I obviously spoke too soon in commenting apropos Peter Voser's appointment as finance director at Shell that at last the company is getting something right. Yesterday came the jaw-dropping news that Sir Phil Watts, Shell's disgraced former chairman, is to be paid more than £1m to compensate him for loss of office. Sir Phil resigned, so legally he was entitled to nothing at all other than his pension, which at £584,000 a year you might have thought quite enough for someone who has managed to make the company into a complete laughing stock.

But no. At its own discretion, the board has decided on a lottery-style payout for presiding over the worst crisis in the company's history. This is the amount Sir Phil would have earned in basic pay had he stayed on to his official retirement date of June next year. As reward for failure - deception, call it what you will - goes, they don't come more startling than this. Shell's proud boast used to be that it went beyond best practice in putting all its directors were on three month contracts.

This turns out to mean nothing at all. Instead the company has chosen to focus on its "core value of respect for people" in deciding that in fact he's entitled to more than a year's money. What planet do these people live on? And the Shell board wonders why the City doesn't trust directors to bring about genuine corporate governance reform.

Drug discovery

A new study has found Pfizer's treatment for Alzheimer's, Aricept, to be almost wholly ineffective. The study is disputed, of course, but the findings are only too plausible. The claims made for a growing number of apparent miracle cures are being challenged as never before. The problem the pharmaceuticals industry has got is that most of the easy pickings in drug discovery have gone, forcing companies to concentrate on ever more difficult and complex conditions - cancers, dementias and the like.