Council of Forte faces uncomfortable decisions
Thursday 04 January 1996
So far the stock market appears not fully to have appreciated this. Plainly, the Council's position is a ridiculous and indefensible one. Other Forte shareholders are certain to find the idea that an institution with less than one per cent of the shares is in a position to overrule their collective power completely unacceptable. Unfortunately for them it can, and unless Granada comes up with a very substantial premium for the Council's shares, it fully intends to. Council members no doubt share the common sense view that the majority should decide, but the fact of the matter is that they have no legal duty to other shareholders.
The Council's origins lie deep in the temperance roots of the old Trusthouse chain of hotels. Its purpose was to ensure that the hotels sold food, as well as more lucrative booze, for the hungry traveller. Such powers of enforcement are rarely needed these days but the Council has a parallel duty as a charitable trust. In bid situations, there is a fiduciary duty to get the best possible price. Since the Council has control, its shares should command a massive premium over the price being offered to others, is the advice that has been given. The Council meets tomorrow to decide what that premium should be.
The Takeover Panel has little guidance to offer in such circumstances. Where there are two classes of share, the two offers are meant to be comparable; the premium offered on one class of share should be no more than the premium at which they were trading before the bid. The comparability rule provides no help in this case, however, since the Council's shares have never traded and no value has therefore been put on its controlling position.
So what's it worth? More than pounds 300m according to the most hawkish view since that would represent half the 20 per cent premium Granada is offering for control. That's quite something for a stake nominally worth less than pounds 3m and is plainly a non starter. The Council may nonetheless feel obliged to go for a sum which adds significantly to Granada's bid costs.
Council members must be hoping that Gerry Robinson does what many commentators are urging him to and withdraws gracefully. Otherwise the unprecedented position they find themselves in could turn into a rather embarrassing one.
Competing for a slice of pounds 20bn
More than two million people must decide within the next few months what to do with the savings and tax-free interest accumulated over the last five years in Tessa accounts. Something like pounds 20bn is available for reinvestment and redeployment; the competition for a slice of this is the nearest thing the UK has yet seen to a full-blown price war in the market for savings.
Inertia favours the Tessa providers, who have been trying to persuade holders to roll their capital forward into a new Tessa. Typically, Tessa investors are traditional savers, most at home with banks and building societies. Relatively few are comfortable with the idea of taking risk. Most have learned to be suspicious of financial salesmen and the commissions and management charges levelled. In all but highly performing funds, investment returns are significantly reduced.
Even so, the biggest challenge to Tessas comes from personal equity plans, which offer tax-free investment with the prospect of better returns and some risk. Six months ago it looked as if the main competitor would be corporate bond funds held in Peps. They offer returns of up to 8 per cent combined with a moderate risk of capital profit or loss. But many providers charge a fee to join, a fee to exit the fund and an annual management charge, all of which significantly reduces the return.
Now it looks as if the main challenge will be from Peps invested in shares, and specifically shares which track the performance of the stock market as a whole. Tracker funds are cheap to run because they need fewer analysts and managers.
Recognising this, Fidelity, the American-owned investment group, has just launched a new fund on which there is no entry charge, no exit charge and the annual charge is just 0.5 per cent. Legal & General has replied by trimming its own charge to equal Fidelity's, and Virgin has indicated it will shortly follow suit. Future investment performance cannot be guaranteed. But over the last few years trackers have performed better than most managed unit trusts. Low-charging trackers look like becoming the all too bleak future for many fund managers. Good news for us though.
Tax changes that cut no ice
Labour calls it a tax bombshell, pointing to a hidden tax hike of pounds 850m. The government presents it as part of a modernising drive to simplify the tax system which will help the self-employed. Both are firing off target - but it is hard to see how the self-employed stand to benefit from the introduction of self-assessment and the associated shift in the basis of assessment of tax liability from previous to current year.
One interpretation of the changes is mistaken; thanks to cushioning transitional arrangements, the self-employed will not have to pay two years' tax in one. However, the new regime will undoubtedly yield more income for the Inland Revenue, since the self-employed will no longer be years in arrears. This accounts for at least part of the pounds 850m increment in revenue; the rest will be paid only if the self-employed businesses turn out to grow in profitability as much as the Treasury hopes.
Set against the blow of having to pay tax on the nail are alleged gains from simplifying the tax system. Some hope. One leading firm of accountants, Ernst & Young, has already called for the countdown to current year assessment for the self-employed to be halted. Philip Davis, their expert on self- assessment, says that the new system is no simpler than the previous one.
The administrative convenience may impress ministers but is unlikely to cut much ice among the ranks of the self-employed whose interests they claim to hold so dear. On the other hand, Labour's campaign would be less self-serving if it pledged to revert to the previous system of assessment in arrears - something on which it remains conspicuously silent. Surprise, surprise.
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