Tokenhouse Yard's ability to adapt is its strength

Cazenove; CBI; Interbrew
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If you cannot beat them, join them. After 177 years as a partnership, Cazenove, the City's most successful corporate broking firm, is joining the herd and floating on the stock market. In the City, the decision will widely be seen as the end of an era. Alone in the City's premier league, Cazenove stood out against takeover in the immediate aftermath of Big Bang. What fools, everyone said. Without the capital or human resources of larger rivals, the firm would wither and die. The partners were throwing away their inheritance.

If you cannot beat them, join them. After 177 years as a partnership, Cazenove, the City's most successful corporate broking firm, is joining the herd and floating on the stock market. In the City, the decision will widely be seen as the end of an era. Alone in the City's premier league, Cazenove stood out against takeover in the immediate aftermath of Big Bang. What fools, everyone said. Without the capital or human resources of larger rivals, the firm would wither and die. The partners were throwing away their inheritance.

But it didn't work out that way. Today the firm is stronger than ever, and its franchise as a provider of independent advise even more robust. Far from floundering as an independent, Cazenove has flourished as one of a very limited number of trustworthy alternatives to the bulge bracket firms of Wall Street and Europe. It has also proved highly adaptable and nimble of foot, bending with the wind to survive some famous City scandals with its reputation not only undamaged, but enhanced. Today the firm is broker to half the FTSE 100 and hundreds of other top listed companies besides.

So if Cazenove has got such a winning formula, why is it floating on the stock market, and by what right does the present generation of partners cash in on 177 years of history and built-up goodwill? The arguments are much the same as those used by Goldman Sachs when it abandoned the partnership structure in favour of a stock market listing just over a year ago.

Recruitment and retention of top staff comes top of the list. Second comes access to capital. A stock market listing provides a currency with which to pay staff, raise capital and make acquisitions. The present unlimited liability structure of ownership, by contrast, is a big constraint on growth. Partners are reluctant to commit to extra operational costs because of their leveraged exposure during any market downturn. Tax compounds the case for incorporation. Capital gain can be taxed at as little as 10 per cent because of the taper provisions. A partner's share of profits are taxed at 40 per cent. So far, so good, but most of this has been true for some years. So why now?

Rebellion in the ranks may be part of the answer - give us a stake or we'll go, kind of thing. Some partners may also have been tempted by the suitors that regularly come knocking in the hope that Cazenove might eventually be persuaded to sell. The Americans, in particular, have never properly understood corporate broking, and would pay handsomely for Cazenove's market niche. A stock market flotation, but with staff and friends retaining the great bulk of the shares, provides a face-saving alternative to outright sale.

It would be wrong to see Cazenove as a relic from the City's past. Its record in staying the course since Big Bang speaks for itself. Eton and the Guards are still there in some force, but so too is some of the best newer, meritocratic blood the City has to offer. Nonetheless, Cazenove's own inimitable mixture of British discretion and connections is no longer enough to sustain the company in a globalising market place. Cazenove needs top people in Paris, Frankfurt and the Far East too if it is to continue to prosper.

Rightly or wrongly, there is a suspicion that Cazenove's continuing power in the City is too heavily invested in just a few highly accomplished rainmakers. No City financier touches quite so many transactions as David Mayhew, Cazenove's chairman in waiting. Remove Mr Mayhew's magic wand and what would become of Cazenove?

They don't like revolutions at Cazenove, and the top brass is determined that the flotation will not amount to one. Mr Mayhew sees it as a natural evolution, rather than a decisive break with the past. In the sense that Cazenove is not selling out, or inviting in some big capital providing outside investor, he's right.

It's also great to see a British-based and run securities house with the confidence to attempt to go it alone. But life in the goldfish bowl of listed company status is very different to the low profile, almost secretive one Cazenove has been used to operating in. The culture shock of that change will need careful managing if it is not to destroy Cazenove's strengths and the unique position the firm occupies in the City.

CBI straightjacket

Digby Jones, director general of the CBI, was at it again yesterday, lambasting the Government for overburdening business with taxation, red tape and regulation. What Mr Jones will not tell his members, however, is Vote Tory. The CBI considers itself an apolitical organisation, so it couldn't possibly do that anyway. But there is a more persuasive reason why British business, or at least the big battalions represented by the CBI, cannot endorse the Conservatives, and that is William Hague's stance on the euro.

The CBI has warmed to Michael Portillo's promises on tax. Nor does it seem to worry too much if these are financed by lower public spending, provided nothing interfers with the transport budget. But the single currency runs like a fault line through business, just as it does politics, and any party prepared to rule out the option of entry for five years is not one that the CBI could happily see voted in.

This schism over Europe makes the CBI's irritation at Labour's regulatory tendency look like a very narrow spat indeed. All governments generate red tape, including the one that famously promised to make a bonfire of it. The CBI may not like the way the tax take from business has risen under Labour. But until the Tories adopt a policy on Europe that big business can live with, the CBI's attack on Labour is always going to look a little half hearted.

Interbrew funding

The stock market has been alive with strange and questionable initial public offerings for nearly two years now, but they don't come much odder than that being attempted by Interbrew, the Belgium brewer. Interbrew intends to use the £1.7bn-£2bn proceeds to pay down the debt it took on when in short order it bought first Whitbread's breweries and then Bass's. This would be fair enough but for one rather major problem.

We don't yet know if the Competition Commission is going to allow these deals. If Interbrew is forced to dispose of either all or part of the Bass interests, which given the stranglehold Interbrew will have over the UK beer market looks more than likely, then it will cost Interbrew dearly. It will not be able to dispose of the assets for nearly as much as it bought them for.

In other words, investors are being invited to take a gamble on the outcome of the Competition Commission report. It is not immediately apparent from the prospectus what happens to Interbrew if it does not raise its new equity capital, but presumably the bankers will move in and demand their pound of flesh. Why else would Interbrew be attempting flotation in such uncertain circumstances? One that investors can safely leave on the shelf.

Outlook@independent.co.uk

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