Jeremy Warner's Outlook: Smith Group's $4.8bn aerospace sale helps redeem the overpriced acquisition of TI

Corporate Britain goes carbon neutral; 3i hangs in there with Countrywide bid; Paulson plans to give it all away
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The Independent Online

Keith Butler-Wheelhouse, chief executive of Smiths Group, has pulled off a corker of a deal with yesterday's $4.8bn sale to General Electric of the group's aerospace division. Merging the detections business into a joint venture with the same American company also looks smart. Yet the transactions disguise rather less glorious origins, and in particular expose Mr Butler-Wheelhouse's acquisition six years ago of TI Group as a complete waste of time and money.

Yesterday's disposal means there is virtually nothing left of the original TI engineering group. It seems doubtful that the industrial restructuring so effected has in the round benefited Smiths Group's shareholders very much, if at all. Mr Butler-Wheelhouse overpaid for TI when he bought it and has been struggling to make sense of it ever since. The automotive division was demerged after Smiths failed to find a buyer at the right price and polymers went soon after.

Mr Butler-Wheelhouse can, I guess, claim that by merging his own aerospace activities with those of TI, he created a more valuable division which he has now managed to sell for what is undoubtedly an excellent price, made all the more remarkable by the fact that the aerospace interests were never formally on the market in the first place.

Yet it is anyone's guess whether the TI acquisition as a whole has created value for shareholders. I suspect not. The shares surged more than 11 per cent to an all-time high yesterday, but even so are only marginally better than they were in the company's heyday back in the late 1990s. Shareholders have not seen much of a return since.

Is it Donald Brydon, the chairman of two and a bit years standing, who has made the difference and finally managed to force a decent outcome from a flawed endeavour? The former fund manager seems to be developing something of a knack for selling British publicly quoted assets at supercharged prices to overseas concerns. A couple of years ago it was Amersham, when the buyer was also GE. Possibly he's getting a bit long in the tooth for all this, but to judge by the record, he'll be in hot demand for his next chairmanship.

Corporate Britain goes carbon neutral

Marks & Spencer is to be congratulated on a "green" initiative that seems genuinely to be an advance on anything so far ventured elsewhere in corporate Britain. It may be relatively easy and low cost for the likes of BSkyB, Man Group and HSBC to go carbon neutral. For a retailer as big as M&S, with a long and varied supply chain and substantial transport costs, it's much tougher.

Yet no one should be under any illusions. Companies are beginning to act over climate change not out of altruism, but because they think it makes good business sense. M&S reckons the series of initiatives announced over the weekend will cost around £200m to implement, making the company fully carbon neutral by 2012.

Even spread over five years, that's quite a sum of money. Yet M&S may be right to believe the expenditure will more than justify itself in terms of brand positioning. The test will come if the slightly higher prices the initiative will undoubtedly cause start to damage the bottom line. Are consumers prepared to pay more for green? The evidence so far has largely been that they are not. Price and value come first. Yet attitudes are changing fast, particularly in the socio-economic groups that make up the bulk of M&S's customer base.

All that said, going carbon neutral is a movement still in its infancy. For companies, it relies crucially on the ability to buy carbon offsets against unavoidable transport costs. Nobody is yet sure whether these offsets have much of an effect. If they are used to buy trees, they can actually end up contributing to climate change rather than helping to reverse it.

In any case, now unstoppable industrialisation in large parts of the developing world make whatever M&S, Tesco and others do to counter the effects look like spitting against the wind. It would be wrong to condemn such actions as just a cynical attempt to climb aboard the latest marketing bandwagon. How much good they do, or whether the money might have been better spent on other things, is another matter.

3i hangs in there with Countrywide bid

A 3i-backed takeover bid by management for the estate agent group Countrywide should by rights have failed yesterday after falling short of the necessary 75 per cent level of support needed to win. That should have been the end of the matter. Instead, Christopher Sporborg, the founder and outgoing chairman, adjourned the meeting so as to give himself more time to persuade shareholders of the foolishness of their ways.

In defence of this decision, it ought to be said that the situation has become exceptionally confused over the past couple of weeks. Much of the share register seems to have changed hands, which may account for the low turnout. Just 53.35 per cent of those eligible to vote bothered to file proxies. Of those, more than 38 per cent voted against. With a higher turnout, 3i might have won. Mr Sporborg's assumption is that many of the hedge funds who have bought in recent weeks would have voted in favour had they been able to. Yet most of them will have bought through contracts for differences - derivative contracts - and may not yet be franchised to vote.

None the less, as yesterday's voting figures confirm, there is a sizeable chunk of shareholders who think 3i would be getting the business on the cheap at 564p a share. They don't seem to have been dissuaded by the virtual certainty that the share price would tank if the offer failed. 3i has already said the offer is final, so absent of a third party entering the fray, it cannot be raised any further.

Can Mr Sporborg reverse the outcome? He's unlikely to sway Artisan, Standard Life and Boussard & Gauvadan. Collectively accounting for around 16 per cent of voting rights, they've made up their minds. Evidence published yesterday that the housing market was softening even before last week's surprise interest rate rise won't persuade them against the view that housing has become permanently less cyclical. In such circumstances, they believe, Countrywide should enjoy a substantially higher valuation than it does.

Personally I think they are right. The case for accepting 3i's money suffers from the same faulty logic as a lot of private equity takeover bids. If 3i truly believes Countrywide's prospects are so uncertain, why is it trying to buy the company? Yet I doubt that in the end it will make much difference. By selling in the market, most long-term shareholders have already taken their money and run. If the company is now largely owned by hedge funds, then the endgame is not in doubt.

Paulson plans to give it all away

According to reports, Hank Paulson, former chief executive of Goldman Sachs and now the US Treasury Secretary, is about to join the growing ranks of the world's super rich pledging their fortunes to charitable causes - in his case, around $800m of it.

There is nothing particularly new about this trend. American industrialists from Andrew Carnegie onwards have been doing it for 100 years or more. Some of the early entrepreneurs of the British industrial revolution used to do it too.

Through their charitable foundations, they gain a kind of immortality, and that, undoubtedly, is one of the primary reasons for their generosity. Yet it is also about giving something back to the societies from whom such wealth has sprung. There are now so many billionaires in the world that it is becoming harder to find immortality or even more transitory fame through charitable endeavour. Yet you can't take it with you and a better way of handing it on has yet to be invented.

j.warner@independent.co.uk

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