Top directors axed at Kingfisher

Kingfisher, the troubled Woolworths and B&Q retail group, announced a radical boardroom shake-up yesterday that could see the company paying as much as £3m in compensation to the chief executive and finance director under the terms of their contr oversial three-year rolling contracts.

Kingfisher said that chief executive Alan Smith, who joined the company from Marks & Spencer two years ago, is to leave immediately, while finance director James Kerr-Muir will depart at the end of April. Sir Geoff Mulcahy, one of the founding directors of Kingfisher, who earned a total of £1.3m last year, will relinquish the executive chairmanship and return to the role of chief executive.

The changes follow intense pressure from City analysts and institutional investors, who have been unhappy at the shares plunging to become the worst performer in the FT-SE 100.

In an day of frantic speculation, the shares closed up 19p at 408p, with some saying that Kingfisher was now a target for a break-up takeover.

The terms on which the directors' contracts are severed are certain to be the subject of close scrutiny. Mr Smith was on a salary of £640,000, so under the terms of his three-year contract he would be entitled to claim up to £1.9m in compensation. Mr Kerr-Muir, whose salary was between £400,000 and £500,000, will be entitled to up to £1.5m.

Kingfisher says the compensation will be negotiated. Three-year rolling contracts have been criticised by large investment groups such as PosTel for offering excessive rewards for failure when directors are forced out. These contracts also run contrary to current guidelines on corporate governance, such as the Institute of Directors' guidelines this week, which recommend that such contracts should be limited to two years. In a subsequent announcement Kingfisher said that Jonathan Weeks, Woolworths managing director, is to take early retirement. He will be replaced by Roger Jones, who is managing director of Superdrug, Kingfisher's chain of high street chemists.

Recent trading has been poor, culminating in a disastrous trading statement last week, which showed that profits at Woolworths would be down by a third over the full year and that Comet, the electrical chain, would make a loss. n The changes were forced through by Kingfisher's non-executive directors. Explaining the decision, Kingfisher's deputy chairman Sir Nigel Mobbs said: "We have been concerned about the performance for some time. We came to the conclusion the management structure gave rise to duplications.

"We looked at the roles of Sir Geoff and Mr Smith and were unanimous in the view that Sir Geoff has the greater ability to turn things around."

However, both City analysts and institutional investors said the jury was out on whether the changes had gone far enough. "Sir Geoff has done well to hold on to his job," one said. Another analyst said that there was widespread dissatisfaction that Mr Smith had gone. "We've spoken to 35 institutions and only one has said this was the right thing to do."

One fund manager was more cautious, saying: "We will wait and see. Sir Geoff will be under no illusions about what he has to do." Another fund manager pinpointed one of the problems institutions and analysts have had in judging the company's management. He said: "We're not sure where the true blame lies in this company."

Tony Shiret, retail analyst at BZW, who has been bearish for some time, changed his recommendation from a sell to a hold yesterday. "The positive side is that at least they have done something," he said.

Kingfisher as takeover target was a popular theory among some analysts. The feeling is that the share price has now sunk so low that its break-up value exceeds its market capitalisation. Asda, the supermarket group transformed by the former Kingfisher finance director, was one cited as a possible merger candidate. Sir Nigel Mobbs of Kingfisher described this as "a novel idea, but unlikely."

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