Jeremy Warner's Outlook: Sir Peter at the end of his shelf-life at Sainsbury's

M&S bid battle; Clarification
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The Independent Online

Sir Peter Davis, chairman of Sainsbury's, has finally fallen victim to shareholder power, and about time too. Drummed out of the job a year before his official retirement date, the interesting thing about this particular City scalp is that Sir Peter, together with his indefensible £2.4m free shares bonus for last year, continued to enjoy the support of the Sainsbury family, with nearly 40 per cent of the shares, right up until the last. And that, in a way, has been the main problem with Sainsbury throughout Sir Peter's four-year tenure.

Sir Peter Davis, chairman of Sainsbury's, has finally fallen victim to shareholder power, and about time too. Drummed out of the job a year before his official retirement date, the interesting thing about this particular City scalp is that Sir Peter, together with his indefensible £2.4m free shares bonus for last year, continued to enjoy the support of the Sainsbury family, with nearly 40 per cent of the shares, right up until the last. And that, in a way, has been the main problem with Sainsbury throughout Sir Peter's four-year tenure.

The controlling family interest behaved rather in the manner of an absentee landlord. So long as Sir Peter kept paying the dividend, it didn't seem to notice that the turnaround strategy wasn't working. The blind eye tendency was greatly exaggerated by the fact that a large part of the family holding belongs to David Sainsbury, who because of his position as a Government minister, was forced to cede control of the stake to a blind trust. The result was paralysis.

The City should have called time a lot earlier, but didn't because it believed the family shares held sway. The dam began to break when big institutional shareholders found they were able to veto the appointment of Sir Ian Prosser as chairman in waiting. Emboldened by this victory, they have moved to block the outrageous bonus Sir Peter was paid for a year in which the company's fortunes continued to go to hell in a handcart.

You never get to the bottom of these things, but I suspect Sir Peter extracted a heavy price from the family as a condition of returning to the fold four years ago. Way back when, he had flounced out of Sainsbury's in a huff after being passed over for the top job. No doubt he made the family go down on bended knee when they asked him to return. Promises would have been made, which as honourable people the family would have felt duty bound to keep.

As we now know, he was not the saviour they were looking for. In recent months, David Sainsbury has become increasingly concerned about the future of the company. He was also appalled at the bonus paid to Sir Peter. And yet with his shares in the hands of a blind trust, he impotent to do anything about it.

The task of turning Sainsbury's around now falls to Justin King, the company's youthful and only recently arrived chief executive. He's got an uphill task. The hugely expensive new distribution system is not delivering the efficiencies it was supposed to while IT was ridiculously contracted out in order to boost short-term profits under Sir Peter's reign. That problem is now coming home to roost. With the deep price discounting Mr King has introduced in recent months in a desperate attempt to boost like-for-like sales, a profits warning now looks inevitable. Indeed, the only thing standing between Mr King and an earlier kitchen sinking of the profit and loss account seems to have been Sir Peter.

M&S bid battle

The way the bid battle for Marks & Spencer is being conducted is more reminiscent of the free-wheeling 1980s than the regulated, grown-up environment we are all meant to operate in today. Normal rules and conventions have been thrown to the winds in a frenzy of self interest. Amid the allegation and counter allegation of dirty tricks and suspect share dealing, there is a virtually unprecedented backdrop of press manipulation, the like of which belongs more to the world of celebrity journalism than reliable financial reporting.

The Marks & Spencer board has been left horribly exposed by allowing itself to be bamboozled by an over excited press into making Stuart Rose its only line of defence against Philip Green's low ball bid. The £100m of cost cuts Mr Rose promised to extract from his suppliers last night shows he means business, but it will count for nothing if the mud slinging causes him to lose his job.

Many of the "specialist" reporters and commentators who follow the retailing industry are far too close to its main protagonists to be able properly to hold them to account or see the wood for the trees. Indeed, much retail reporting these days is little more than celebratory, for which, presumably, the journalist is occasionally fed a scrap of an exclusive.

In the run up to Mr Green's assault, the press helped create an air of crisis around M&S which in truth was as much illusion as reality. It played straight into the hands of both Stuart Rose and Philip Green, destabilising the company and culminating in the public defenestration of the company's chairman and chief executive. The bid by Mr Green, and the hiring of Mr Rose as supposedly the only alternative to the Green machine followed soon after.

M&S's decision to link its destiny so unambiguously to that of Mr Rose now looks ill judged. If Mr Green succeeds in further soiling Mr Rose's reputation ­ some would argue it has already been irreparably damaged by the circumstances surrounding his purchase of shares in M&S ­ where does that leave M&S's defence? Having had the door slammed in his face, Mr Green seems to have prized it open again.

Meanwhile, we have the spectacle of Mr Green's "virtual" bid, which is not a bid at all in the sense that its progress can be adequately regulated by the City Takeover Code. Instead it is a series of half promises to bid subject to a satisfactory due diligence. The bidding vehicle, Revival Acquisitions, remains largely a mystery. There is as yet no account at Companies House of what the company's share capital is, who owns it and where it is based. One day, the Green camp seems to be saying 370p a share is a take it or leave it final offer, the next day it is not.

Yesterday I wrote that the chances of Mr Green's bid being referred to the Competition Commission are much higher than the City appreciates. All I have heard since only confirms the view that there is growing concern in the Government over Mr Green's endeavour, and in particular the potential loss of tax revenue that any highly leveraged takeover of M&S is bound to involve. Any attempt to establish an offshore holding company for M&S would be regarded with the utmost suspicion by the Inland Revenue. The press may have given up its role as watchdog of the wider public interest, but there's still someone awake at the switch.

While the Green camp plays the Rose insider dealing allegations for all they are worth, M&S insinuates dirty tricks, bugging and deception by its assailant. The issue last night of Data Protection Act notices to unspecified people and organisations ­ OK, so Goldman Sachs, one of Mr Green's bankers was one of them -­ further advances the suggestion of untoward practice. As I understand it, the espionage is in fact the work of a Sunday newspaper, and not Mr Green or his associates at all. Whatever the truth, any consideration of the future of M&S got lost somewhere along the line, buried beneath a mountain of dirty washing.

I hold no torch for M&S, but the company deserves better. Current events are enough to make Lord Sieff, the last truly great retailer to run M&S, turn in his grave. For the time being, the M&S board daren't ask the Takeover Panel to rule that Mr Green either put up or shut up for fear of being accused of frustrating a bid. Yet that point is fast approaching. The trigger should be the company's 12 July presentation to outline plans for improving operating performance. Time for Mr Green to put his best foot forward, and for shareholders and regulators to decide.

Clarification

In Outlook yesterday, I referred to Richard Caring, one of Philip Green's suppliers, as having bought shares in Marks & Spencer in the run up to Mr Green's declaration of intent to bid for the company. I am happy to point out that Mr Caring last bought shares in M&S in October last year, which was before Mr Green began to plan his latest assault on M&S.

jeremy.warner@independent.co.uk

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