Outlook: Market lessons for mutuals

MICHAEL JACKSON, chief executive of Birmingham Midshires building society, may well deserve the hard time he's getting from the press and others for agreeing a bid from Royal Bank of Scotland which now looks like a severe undervaluation. But there's another way of looking at it.

What about this proposition? When Birmingham Midshires agreed last August to takeover terms of between pounds 605m and pounds 630m, it signed a no-lose deal. At the time, the price looked reasonable when compared with other building society conversions, the existing Birmingham Midshires board was to be given complete autonomy within RBS, the brand would be preserved, and there was to be a three year guarantee to staff on job losses.

Mutually owned institutions are not like PLC's. When directors consider their fiduciary duties, they are obliged to act in the long-term interests of the society as a whole, including employees, not just the organisation's owners. The deal with RBS seemed to square the circle - a decent windfall for the members and a guaranteed medium-term future for the society.

Since then, share prices among the converted building societies have risen 20-40 per cent and the RBS terms - at 12 times current earnings and 1.7 times book value - have begun to look poor set aside valuations of up to 19 times earnings and 3 times book for Halifax and its like.

OK, concedes Michael Jackson. If he were striking the deal today he would have gone for something higher. Few people anticipated these soaraway share prices, and, in any case, there's nothing in the agreement with RBS to preclude Halifax or anyone else from tabling a higher bid if they want to. Just think what would have happened if share prices had gone the other way, if they had fallen rather than risen. Then the boot would be on the other foot. According to Birmingham Midshires, then, far from cocking up the original negotiation, it has managed to put a floor under the price while at the same time leaving the door slightly ajar to others.

Perhaps unsurprisingly, RBS has a different interpretation. It believes it has a legally watertight lockout agreement with Midshires and that the Midshires board will not be able to consider Halifax's higher offer, far less recommend it.

We'll see. Part of the blame here lies with the cumbersome process of conversion. Unlike bids for publicly listed companies, which have to be completed within 90 days, building society conversions take an awfully long time - up to 18 months. If this takeover had happened when it was first announced, nobody would be grumbling. Nor would anyone be complaining if the terms had been fixed not in cash but in RBS shares, which have enjoyed the same ride as the converted building societies over the last nine months.

But perhaps the biggest lesson here is that there are no half-way houses between the utopianism of the mutual tradition and the slash and burn priorities of the joint stock company. Once the principle of mutuality is conceded, there's no turning back. Once the door is opened, the wolves will be in. It is probably not possible for a building society both to convert and have everything continue in the same cosy way as before, which was the intention of the RBS deal. However, Halifax needs to be a bit careful here. It too might find itself victim of the stock market's appetite for cost cutting consolidation.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: HR Benefits Manager

£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

Recruitment Genius: Office Manager / Financial Services

£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

Jemma Gent: Year End Accountant

£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

Jemma Gent: Management Accountant

£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

Day In a Page

The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
Yvette Cooper: We can't lose the election. There's too much on the line

Yvette Cooper: We can't lose the election. There's too much on the line

The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

It's not easy being Green

After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

Gorillas nearly missed

BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

The Downton Abbey effect

Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
China's wild panda numbers have increased by 17% since 2003, new census reveals

China's wild panda numbers on the up

New census reveals 17% since 2003