Outlook: Rice up against City vested interests

SO MUCH jingoistic nonsense has been written and said about Lucas Varity's plans to shift its domicile and primary listing to the US that it seems quite likely Victor Rice, the chief executive, will lose when the issue is put to a vote of shareholders on Friday.

Small shareholders are being whipped into a frenzy of nationalistic opposition; don't let the Americans take this company away from you, they are being told. The shift of domicile has been elevated into such a point of high principle, on both sides of the argument, that Mr Rice might be forced to view a 'no' vote as one of no confidence and therefore feel obliged to resign.

On both scores this would be a shame, for although the issue certainly makes for a good table thumper, it is not obvious why Mr Rice's plans should be rebuffed. Rather the reverse. If they fail, this will be a victory not for shareholder rights, but for vested City interest. And it will be at the expense of Lucas Varity's long-term prospects.

But first the case against. Essentially it rests on the belief that once Lucas Varity becomes a fully constituted American company, the interests of its British shareholders, and particularly those of its 17,500 private investors, will be ignored. The press will lose interest, the City will lose interest, and with no voice to represent them, the remaining British contingent won't get a look in.

Mr Rice will trample all over them. British shareholders have already had to fight a relentless rear guard action to prevent Mr Rice replacing dividends with the American habit of share buybacks. That will become an inevitability once Lucas Varity turns American.

In truth, Mr Rice has shown scant regard for these interests over the years. From the moment that Lucas and Varity came together as a supposed merger of equals, it was apparent that this was essentially an American takeover. Mr Rice, who lives in the US and runs the company from there, pays lip service to the investor relations requirements of a FTSE 100 company, but not much more. Had he done so, he might now be getting a more sympathetic hearing. It might be said that by accepting what Mr Rice proposes, shareholders are only bowing to what is already a reality.

This isn't a good reason for giving in to what Mr Rice now wants to do, of course. Nor is the fact that since the merger, the Brits have sold down their interest in the company from around 60 per cent at the start to little more than 40 per cent today. British investors have hardly shown great support for the company. On the other hand, it is those that remain, not those that have deserted, that should be dictating the agenda. So what will the switch do for them?

The case in favour lies in the greater value Lucas Varity can be expected to attract once its shares are in the S&P 500. Judged by the rating given to Lucas Varity's US sector peers, the shares might trade on anything up to a 30 per cent premium to their present value. Even as a bid premium, most shareholders would not find this easy to turn down. Furthermore, if the plans are rejected, some US shareholders will sell and the price will become more depressed still.

This is a phenomenon that cuts both ways. Many British institutional shareholders are hamstrung by irrational, outdated and restrictive rules which may oblige them to dispose of their shares if Lucas Varity ceases to be a British or a FTSE 100 company. That's certainly what some of them claim, and hence their opposition.

On the other hand, small shareholders suffer from no such handicap and it would seem very much in their interests to vote these proposals through. As a whole, the British investment community seems not to care a fig about Lucas Varity and similar companies. Like BTR, another beleaguered but world-class engineering company, Lucas Varity is only in the FTSE 100, because of its size. In an index otherwise dominated by low-risk financials and utilities, Lucas Varity sticks out like a sore thumb, both because of its business, engineering, and its valuation, which relative to the rest of the index is low in the extreme. And yet these British institutions still want to call the shots, have Mr Rice dance to their tune, be informed, wined and dined and generally wooed by their company.

In these circumstances it is no wonder that Mr Rice should want to shift his primary listing to an investment community still prepared to back entrepreneurialism and business ambition, regardless of the sector it is practiced in. The cost of capital is lower for business in the US and therefore share prices are higher.

Quite how serious a disadvantage Lucas Varity suffers as a consequence is unclear, but it is obviously the case that if companies are to survive and prosper, they must be competitive across all costs including capital. The City's established power brokers talk in shocked and patriotic terms about how the rules will force them to sell out of Lucas Varity if it switches domicile, but is not this more the hollow protests of vested interest than anything else? Nearly all pension funds own overseas assets. There seems no good reason why these institutions should have to sell their Lucas Varity shares. Why don't they just reallocate them?

America is the land of the small investor, more so than any other, for in the end the needs of the private investor are not so very different from those of any other. What small investors want is for their investment to grow. Perhaps, regrettably, the chances of that happening seem to be rather better in the US than they are here.

Start your day with The Independent, sign up for daily news emails
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

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?