Whiff of Eighties in shoot-out for Northern

Maybe it's that stage of the cycle again, but Northern Electric's City advisers, Schroders and BZW, brought back a hint of the 1980s this week in the tactics deployed defending their client against an unwanted bid from CE Electric of the US. The outcome of the bid was still in doubt at the time of going to press last night with various allegations of skulduggery being aired before the Takeover Panel. It almost brings a warm glow to the heart, for it hasn't been like this for years.

With the bidders still short by a whisker of the necessary 50 per cent, the primary allegation was that of "boxing in". That means accelerated settlement of share transactions for those sympathetic to the defence cause, and slow settlement for those hostile to it - generally arbitrageurs. Acceptance by some US arbs had been turned away as too late, it was alleged. Naturally, both allegations are denied.

But what really caught my eye was something that occurred earlier in the week. What Schroders and BZW did was to buy a chunk of Northern Electric with the intention of voting the shares against the bid. Since the exercise was likely to cost the advisers quite a sum of money in the event of their achieving their purpose (frustration of the bid), they had some explaining to do. The Takeover Panel considered the move well into the night and eventually ruled that the advisers were within their rights. It is impossible to tell whether it did the cause any good, but from what I hear it was probably counter-productive, irritating some Northern Electric shareholders so much that it finally tipped the balance and made them vote in favour of the bid. The techniques of the 1980s may be back, but it seems to be that much more difficult to make them work in favour of the client.

Let me explain why. In the bad old days of the City - pre-Guinness - it was par for the course to try to manipulate the market in favour of bidder or defender. Not everyone did it but those who expected to succeed generally dabbled in the black arts to some degree.

So called "fan clubs" would be organised, buying or selling shares in a co-ordinated fashion designed to benefit those they supported. Since in many instances these share purchases would result in a loss, there had to be a quid pro quo. Typically, supporters would be those with a commercial interest in the outcome - suppliers, advisers, contractors. The pay-off would be a strengthening of the relationship (ie more contracts), a dollop of pension fund money to manage, or perhaps a slug of non-existent consultancy work.

These essentially corrupt practices reached their logical end game in the Guinness affair, which both in terms of size and sophistication surpassed anything that had gone before. The niceties of "you scratch my back and I'll scratch yours" were dispensed with in favour of no-nonsense indemnities against loss and straight cash payments for services rendered.

The point about market manipulation, however, is that it doesn't work unless it is conducted in secret. If everyone knows what is going on, if it is disclosed and transparent, then it is also highly likely to be counter-productive.

That is what probably happened in the Northern Electric case. The defenders won control of another 2.3 per cent, but this could easily have been counter- balanced by the number of shareholders they irritated in the process. Neither Schroders nor BZW made any attempt to hide what they were doing, nor given the rules, would they have thought of doing so. All that died with Guinness. About the best they could do in the circumstances was to say they were buying for genuine long-term investment purposes.

In fact they never tried to claim even this, publicly at least, for it is not an easy case to sustain. Everyone was left to draw their own conclusions. Since the advisers so obviously had a commercial interest in the bid failing, the effect was to alienate other shareholders from their cause. Schroders and BZW can afford to take the loss on these share purchases because they will be recompensed in other ways. For a start, they've got a success fee riding on Northern coming out of it with its independence intact. And, of course, their "relationship" with the client will be strengthened. That means more lucrative fees to come. Other shareholders were not in this happy position.

Something similar happened during Enterprise Oil's bid for Lasmo two years ago, although this was not a case of market manipulation as such. In the closing stages of the bid, Enterprise's advisers tried to boost their position by offering preferential terms to a select group of large shareholders. It so infuriated other Lasmo investors that they turned on Enterprise and the bid was lost.

The lesson, then, is that nobody gets any credit for playing silly games. Shareholders want bid battles to be fought on their merits, not on clever little manoeuvres by those with a commercial interest in the outcome.

The Guinness affair never seems to go away, does it? In part that's because Ernest Saunders, the former Guinness chairman, is so determined to keep it in the headlines. His continuing "fight" to clear his name ensures it is never far from the front pages. So what are we to make of this week's judgment from the European Court of Human Rights?

Nobody's going to quarrel too much with the court's ruling that in criminal cases, suspects should not be deprived of their basic right of silence. It is plainly wrong that a murderer or rapist gets better protection under the law than a financial swindler. The trouble is that everyone knows that there was widespread crookery during the Guinness bid for Distillers and that Ernest was one of the ring-leaders.

To be able to say you were unfairly tried is one thing. But it doesn't clear your name. Most people continue to be appalled at the prospect of Mr Saunders' conviction being quashed. As for compensation, there would be rioting at the doors of Westminster if it were ever paid.

Mr Saunders is right to claim he was treated in an oppressive manner but I suspect that an opinion poll on the matter would confirm that most people think he thoroughly deserved it.

Which brings us back to the question of whether it is possible for the authorities to get convictions in cases like this if defendants cannot be required to give evidence against themselves. Lord Roskill, the judge whose recommendations led to the formation of the Serious Fraud Office, believed this to be the only way of dealing with the complex and sometimes impenetrable nature of financial crime. He's probably right. So do we just give up and make these things a purely civil matter? I think not, for that would only encourage the view that there is one law for the rich and an altogether different one for the poor.

Start your day with The Independent, sign up for daily news emails
Life and Style
Steve Shaw shows Kate how to get wet behind the ears and how to align her neck
healthSteven Shaw - the 'Buddha of Breaststroke' - applies Alexander Technique to the watery sport
Arts and Entertainment
The sight of a bucking bronco in the shape of a pink penis was too much for Hollywood actor and gay rights supporter Martin Sheen, prompting him to boycott a scene in the TV series Grace and Frankie
tv
Sport
footballShirt then goes on sale on Gumtree
Voices
Terry Sue-Patt as Benny in the BBC children’s soap ‘Grange Hill’
voicesGrace Dent on Grange Hill and Terry Sue-Patt
Arts and Entertainment
Performers drink tea at the Glastonbury festival in 2010
music
Arts and Entertainment
Twin Peaks stars Joan Chen, Michael Ontkean, Kyle Maclachlan and Piper Laurie
tvName confirmed for third series
Sport
Cameron Jerome
footballCanaries beat Boro to gain promotion to the Premier League
Arts and Entertainment
art
News
ebookA unique anthology of reporting and analysis of a crucial period of history
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

Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
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