Jim Armitage: As the Phones 4U wrangle shows, it was a classic suckers’ market


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Outlook: I like conspiracy theories as much as the next UFO enthusiast, but I find myself in the uncomfortable position of taking the side of the oligopolistic multinationals – Vodafone and EE – in the Phones 4U wrangle.

Much muck has been spread in all directions, a great deal of it from John Caudwell, the man sitting on a £1.4bn fortune from his sale of the business in 2006. He squarely blames the phone giants for deserting the company.

But the closer you look at the situation, the clearer it becomes that Phones 4U’s management, and its private equity backers, BC Partners, were more to blame.

First of all, look at how BC loaded the company with debt in order to pay itself a £223m dividend – more than the £200m it invested when it bought the business. According to Vodafone, Phones 4U’s own management said such debts hobbled its abilities to offer competitive commissions with the suppliers.

BC denies this vehemently, claiming Vodafone categorically told the company in July that it was nothing to do with Phones 4U’s terms and entirely because of it pursuing a direct-to-customer strategy. With some justification, it argues that the dividend only puts it back in the same level of indebtedness it was in under its previous private equity owners.

But you can’t help thinking, why is it that Dixons Carphone seems able to come up with a competitive deal when Phones 4U can’t? Surely it is at least in part to do with Dixons Carphone’s financial flexibility thanks to a wide share-holder base, rather than being lumbered with private equity installed fixed debt.

Who knows, had it been on the Stock Exchange, Phones 4U could perhaps have, à la Tesco, slashed its dividend to offer a better deal to 3, O2, EE and Vodafone and kept all on board. Now, having made themselves a pretty decent income from their ownership, some inside BC seem angry at Vodafone and EE for offering to buy the shops. There are suggestions that the big operators conspired all along to sink Phones 4U in order to buy the business on the cheap from the administrators, which they, of course, deny.

There’s no doubt that could turn out to be a handy side effect of this sorry saga, but to suggest that was the dastardly plan from the outset seems to stretch credulity. Had Phones 4U’s financial and business model been adequately robust in the first place, perhaps more than 5,000 workers would not now be looking for work.

The fact that BC Partners walks away from the wreckage not only with no losses, but with a multimillion-pound profit, shows a trend depressingly common in private equity takeovers since the financial crisis: there’s only ever one winner. Or, as one investor who bought Phones 4 U’s bonds put it to Reuters: “This was a classic suckers’ market; the only ones who prepared themselves for this were BC Partners.”

All change at Signia?

Another of John Caudwell’s businesses is the fund manager for the super-rich he set up with the entrepreneurial daughter of French vineyard owners, Nathalie Dauriac-Stoebe. It’s called Signia and, until the arrival last December of a new chairman (former VT engineering boss Paul Lester), it had been mentioned in the trade press for the rather large number of staff going out of the door.

One departee is Spencer Moulton, son of the turnaround investor Jon Moulton, who also works at the firm as an adviser. A little bird told me Moulton Snr might not be staying for too long either – a suggestion given spice due to Mr Caudwell being a major investor in Mr Moulton’s Better Capital turnaround fund. “Not so,” say Signia sources, enthusing about the happy ship they sail in.

I’m sure Mr Caudwell and his money are persuasive, but I suspect the allure of spending more time at his home in Guernsey will get the better of Moulton Snr sooner rather than later. Watch this space.

Scot free? Don’t panic

Amid the deafening clamour of the “No” camp, how refreshing to hear the economist John Kay’s voice of reason yesterday. The long term impact of a Yes vote? Not much. Of course, there will be volatility in financial markets initially, but the negotiated settlement that follows will provide sensible compromises for both countries. It is in neither side’s interests to do detrimental deals. Mr Kay knows Scotland better than most, having been an economic adviser to the Scottish Parliament. So when he says it’s most likely that the UK, and Scotland, will be OK whatever the vote, we should panic less, think more and take off the tin hats