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
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Telesales Executive - OTE £25,000

£13000 - £25000 per annum: Recruitment Genius: Would you like to be part of a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Are you passionate about sale...

Ashdown Group: Graduate Developer (Trainee) - City, London

£25000 per annum + benefits: Ashdown Group: A large financial services company...

Ashdown Group: Marketing Assistant - Financial Services Sector - London

£20400 per annum: Ashdown Group: An established and highly reputable organisat...

Day In a Page

The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory
Ashes 2015: Alastair Cook not the only one to be caught in The Oval mindwarp

Cook not the only one to be caught in The Oval mindwarp

Aussie skipper Michael Clarke was lured into believing that what we witnessed at Edgbaston and Trent Bridge would continue in London, says Kevin Garside
Can Rafael Benitez get the best out of Gareth Bale at Real Madrid?

Can Benitez get the best out of Bale?

Back at the club he watched as a boy, the pressure is on Benitez to find a winning blend from Real's multiple talents. As La Liga begins, Pete Jenson asks if it will be enough to stop Barcelona
Athletics World Championships 2015: Beijing witnesses new stage in the Jessica Ennis-Hill and Katarina Johnson-Thompson heptathlon rivalry

Beijing witnesses new stage in the Jess and Kat rivalry

The last time the two British heptathletes competed, Ennis-Hill was on the way to Olympic gold and Johnson-Thompson was just a promising teenager. But a lot has happened in the following three years
Jeremy Corbyn: Joining a shrewd operator desperate for power as he visits the North East

Jeremy Corbyn interview: A shrewd operator desperate for power

His radical anti-austerity agenda has caught the imagination of the left and politically disaffected and set a staid Labour leadership election alight
Isis executes Palmyra antiquities chief: Defender of ancient city's past was killed for protecting its future

Isis executes Palmyra antiquities chief

Robert Fisk on the defender of the ancient city's past who was killed for protecting its future