Time to put a stop to the fast buck merchants
City & Business
Sunday 22 October 1995
Events at Scholl, the footcare name as familiar as Boots or Beecham, may seem anachronistic in the 1990s. Rebel shareholders, requisitioning a special meeting on Tuesday to force Scholl's sale, are certainly different from the familiar empire builders, bringing hardball US-style tactics to the UK market.
Scholl has a difficult trading record, but investment bankers Brian Myerson and Julian Treger are not planning to run the company. Instead, they want to perch on the board as non-executives, conducting an auction to turn a handy profit on their 15 per cent stake.
Fresh from past assaults on Liberty and Acquascutum, they now plan a similar fate for Signet - better known as jewellery chain Ratners - where management is trying to sort out the legacy of a past corporate spending spree.
Unlike all these firms, whose ownership is transparent, their Active Value Fund is based in the British Virgin Islands, a tax haven where inquiries into backers' identities runs into a wall of banking secrecy.
Unsurprisingly, most leading institutional investors are perturbed by such siege tactics. They prefer to effect changes behind the scenes and are likely to defeat the raiders if the vote is pressed this week.
Mr Myerson and Mr Treger, along with investment fund ally JO Hambro, started building their stake early this year but chose a strange time just a month ago to start a public slanging match. Then, with a strong set of interim results, Scholl appointed a new chief executive - Colin Brown, a veteran of more than 30 years at Reckitt & Colman - meeting one of the rebels' previous backstage demands.
Their aggression suggests they care not a fig for Scholl's or its shareholders' long-term future. Rebuild- ing the firm - or a possible sale in the future - will not come quickly enough to make a very fast turn.
The company has a duty to consider any serious bid, yet none of the big names cited by the rebels, including Schering Plough (which owns the Scholl brand in North America), have come forward in support. The one vague interest revealed so far is a private French company far smaller than Scholl.
Peace may yet break out before Tuesday, but at what cost already to staff, creditors' and debtors' confidence and Scholl's bank account? Perhaps the lesson of the affair is that historically diffident institutions should press more firmly for change behind the scenes, as they appear to have done recently at British Aerospace and British Gas. Pension and insurance funds, owned by the public at large, need to be encouraged - by capital gains tax incentives, perhaps - to take a longer-term interest, like German banks, in the firms in which they invest.
In the short term, institutions as well as smaller investors should reject the fast-buck merchants if it comes to the crunch on Tuesday.
SFO comes out fighting
IT'S ONE hell of a month for the Serious Fraud Office. Chestnuts old and new are making headlines all at once - Barings with Singapore's long- awaited, hard-hitting report last week; Guinness, where Ernest Saunders et al started an appeal on Monday against their 1986 Distillers share- ramping convictions; Maxwell, where son Kevin has finally taken the stand; and Polly Peck, with fugitive Asil Nadir's sister claiming pounds 5m for wrongful arrest and false imprisonment.
For once, though, the SFO is not getting too bad a press. The office's record is much better than all the past flak suggests. It has secured convictions in around two-thirds of the cases it has brought, though its experience with complex securities cases after the first Guinness trial is more chequered.
Part of the better coverage is down to individual cases. Nick Leeson did himself no favours in a smirking TV interview. Most people see it as cut and dried that the best place to try him is in Singapore, where Barings' losses took place.
Much, though, is down to a greater willingness to explain itself. In the past, the SFO has clammed up in a manner beloved of government departments in Britain's culture of official secrecy. Now, a little more open, it is no longer always on the back foot.
If only the same could be said for the Bank of England. Its release on July's Board of Banking Supervision report omitted all mention of severe criticism of the Bank and read as a whitewash drafted by officials for press officers to hand out. No wonder it has been forced on the defensive ever since.
That said, it will undoubtedly be a severe blow to the SFO if the Guinness appeal succeeds with its allegations of political manipulation and witholding of evidence from the defence. The SFO expects to make a robust court defence of its conduct, starting this week.
AFTER two weeks of a bid-frenzied bull run, the market finally came off on profit-taking on Friday when none of the much-mooted takeovers actually arrived. After hitting a record 3,593 closing high on Wednesday, the FT-SE 100 index ended the week 27.2 points lower at 3,551.4.
Since Lloyds' pounds 14bn merger with TSB just 12 days ago, the list of rumours doing the rounds reads like a shooting gallery of the UK's finest: Unilever for Cadbury; Cadbury for United Biscuits; Guinness, every drinks and break- up merchant in town for GrandMet. This week, it was the turn of the banks and insurers again. If all the talk came good, the bill would come to a staggering pounds 70bn plus!
On fundamentals, however, the market looks overvalued. BZW equity strategist Richard Kersley warns that the premium over riskless gilts has narrowed uncomfortably and more firms are disappointing over dividend growth. Third- quarter GDP figures, showing growth slowing, may also take off the shine this week.
BZW is sticking to its 3,500 FTSE forecast for the end of the year.
Patrick Hosking is on leave.
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