The man in pink is still favourite to win Lucas
COMMENT: 'Lucas's attempts to rubbish Mr Quarta and BBA before it has even seen the colour of his paper look odd since Lucas regarded him highly enough to approach the American about taking over from its departing chief executive'
Thursday 06 June 1996
But if, as seems likely, he does launch a hostile break-up bid for fellow car components group Lucas, he will have to give plenty. For a start there is the small matter of the $25m "break-up fee" that will have to be paid to Lucas's preferred partner, Verity, if the bid succeeds. That'll buy quite a few of the pink tracksuits Victor Rice, Verity's chairman, allegedly likes to wear when travelling.
That in itself might seem bad enough but it is mere pin money compared with what Lucas would cost. Lucas is capitalised at twice BBA's market value. No wonder Mr Quarta is rumoured to have had difficulty underwriting his bid in the City.
Even so, Lucas's attempts to rubbish Mr Quarta and BBA before it has even seen the colour of his paper looks odd since it is well known that Lucas regarded him highly enough to approach the American about taking over from Lucas's departing chief executive, George Simpson. The assertion that a merger with BBA possesses no industrial logic is also peculiar given that Lucas and Varity, by all accounts, both approached BBA about buying its friction brakes business.
But for all that this will be a hard one for BBA to pull off. By allowing a head of steam to build up behind the Lucas-Varity deal it has left itself in the position of having to pay considerably more than if it had struck earlier. This in turn begs the question of the level of institutional support it has. Who knows, Mr Quarta may surprise us. After all no one gave Farnell Electronics much of a chance with its reverse takeover of Premier. It boils down partly to who will best revive Lucas. The odds must be with the man in pink for now. He may have to fight a bloody war before winning his bride, however.
Forex markets bet on higher rates
The markets' favourite double act, Kenneth Clarke and Eddie George, kept their audience on edge yesterday. They held their monthly meeting later than usual, leaving the Bank of England no time to cut base rates even if that is what the Chancellor had wanted. Mr Clarke's decision will not be clear until today. They also met for longer than usual - what could they have had to talk about for an hour and a half?
Most economists expect no change in interest rates, but the small chance of a cut made it a good day to take profits on the pound. Even so, sterling is left near its highest level against the mark for 16 months. More than half the currency's recovery from its all-time low last November has taken place during the past five weeks.
It is a striking performance, which although it has little to do with the Great Beef War does have an element of Euro-reasoning behind it. Sterling is benefitting from concern about what may happen to the mark on the way to monetary union. It is as safe a bet as there ever is in forex that the euro will not be as strong as the mark. What's more, the odds are on a Labour government looking more favourably on linking the pound to the euro even if not joining it, which is helping to underpin sterling.
However, the main factor behind the pound's strength is the outlook for interest rates in the UK and abroad. While some City economists think moribund manufacturing performance and low inflation will provide the excuse Mr Clarke needs to cut the cost of borrowing, the markets as a whole are betting on faster growth leading to higher base rates before the end of the year. Indeed, by next June, the futures market expects the level of rates to be back up to 7 per cent.
While interest rates here and in the US seem set on an upward path, European rates could fall further. As it turned out, the German economy didn't fall as much as expected in the first quarter and April industrial output figures were not as bad as feared. Even so, the Bundesbank will probably ease short-term market rates lower, and keep its key rates down for many months to keep the economy on the rails and counteract the effect of budget-cutting.
Some sterling sceptics think the markets are taking too little account of political risks in the UK, from pre-election interest rate cutting to the Government's unpredictable Euro-antics. However, chartists reckon the pound could move as high as DM2.48 in coming weeks. Closer to the likely election date it will be another matter.
The plant is pruned at Courtaulds Textiles
It's a precarious business being a chief executive these days. They might get well paid, but as likely as not they will also eventually get fired. Especially perilous is the position of the chief executive who is also a company man. The outsider, the hired gun, comes to expect the bullet in the back of the head. Perform or die is his prospectus. But the insider expects loyalty for his years of service, and time to prove himself. Increasingly he doesn't get it. When the time comes for cultural and structural change, he is rarely seen as the man for the job. In comes the new broom to sweep all before him.
Noel Jervis, who was unceremoniously thrown overboard by Courtaulds Textiles yesterday, is a case in point. He's been at Courtaulds man and boy. When Martin Taylor departed for Barclays (his timing could hardly have been better), Mr Jervis finally got his chance. It has been downhill virtually all the way since then, culminating in last month's profits warning. He seems to have been promoted above his head.
Mr Jervis, by all accounts, was the archetypal insider chief executive. He knew the industry back to front, he had great ideas on how to grow the company, he knew what the company had to do and where it had to go. But when it came to implementation, somehow or other he just couldn't do it. Nothing happened. He was what in management school speak is known as a "plant", a creative, cerebral type and a lateral thinker. You rarely see people like this at the top of organisations - which is a shame because they have much to contribute. But it is obvious why. They don't get things done and they are poor when it comes to boardroom politics. What John Eccles, chairman of Courtaulds, thinks he needs is more of an SH (you can imagine what that stands for) to run his company.
It is hard to known whether Colin Dyer fits the bill. He hasn't been at Courtaulds as long as Mr Jervis but he is still very much an inside appointment. To replace one insider with another might not seem like much of an advance. Courtaulds perhaps deserves the benefit of the doubt, however. Any company that can admit it is disposing of its chief executive "in order to allow a more effective implementation of strategy" must have something going for it.
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