We can no longer describe a takeover auction, conducted by the City referee the Takeover Panel, as a rarity.
The bidders for supermarket group Morrisons, private equity outfits Fortress and Clayton, Dubilier & Rice (CD&R), will go head to head this Saturday, October 2.
It will be the third time that the process has been invoked in recent times following the contested bids for G4S and Vectura.
Going… going: The bidders for supermarket group Morrisons, private equity outfits Fortress and Clayton, Dubilier & Rice, will go head to head this Saturday, October 2
The big disappointment is that a distinctly feeble Morrisons board, headed by Andy Higginson, essentially said: Come and get us.
It bent the knee to Mammon, disregarding broader stakeholder responsibilities as set out in Section 172 of the Companies Act.
Greater acknowledgement of duty to the workforce, suppliers, the nation’s food security and the taxpayer interest would not have been amiss.
It is hard enough for government at times of economic stress to persuade responsible quoted companies to act in the public interest. Imagine how much harder it would be if dealing with the economic vandals of private equity.
Both bidders are unsuitable owners. Fortress is controlled by Softbank and includes in its consortium controversial Koch Industries.
Koch has a reputation as propagandists for far-Right US causes and should not be allowed anywhere near a company that is a critical part of the UK’s food supply chain.
Fortress has made no commitment so far to make good and strengthen the pension fund.
The suspicion is that it stands ready to sell Morrisons’s property assets, which could have been used as a covenant for the grocer’s current and future retirees. CD&R engaged and reached an accommodation with pension fund trustees.
This doesn’t mean that we should stand on the side lines and cheer former Tesco boss Sir Terry Leahy and CD&R home next week.
But they do have a better record of building UK enterprises, most notably the no-frills retailer B&M. Moreover, CD&R has a genuine UK headquarters and operational capacity that Fortress lacks.
But its financing model is far from benign. As with all private equity deals, the offer for Morrisons, which already has its own debt pile, will be financed by further borrowings.
That makes the ownership structure more risky in an era of potentially rising interest rates. It also means debt interest can smartly be offset against tax, lowering or even wiping out the corporation tax revenues.
Moreover, like much of the private equity industry, CD&R has set up shop in the offshore and opaque Cayman Islands.
The reason for that is that any dividends paid out to the new owners are better able to avoid the attentions of HMRC.
UK water companies were effectively required by regulator Ofwat to re-shore in Britain after dividends – which should have gone into sewage clean-ups and investment – were paid to offshore entities.
The moment of truth for the easily impressed Morrisons board will come should Fortress offer a higher price.
It would be caught between the devil and the deep blue sea.
How much better it would be had directors resolved that anything overseas private equity can do, it can do better.
Wise guys
Among the features of recent tech floats is the unwillingness of founders to relinquish power. It is often maintained through dual class shares and hanging onto the top jobs.
If fintech stars want to show seriousness of purpose and the highest standards of integrity, they need people in the chairman’s role with City experience.
A lesson of the financial crisis was that a gifted amateur as chairman of Northern Rock, and a pharmacist in charge of Royal Bank of Scotland, offered no protection to depositors or shareholders.
Payments specialist Wise sold itself to investors as a disrupter, changing the model and lowering the cost of international money transfers. It laudably makes a good profit and has landed a stonking £8billion valuation.
So it comes as a bit of a shock to find that one of its founders, Kristo Kaarmann, has form as someone who neglected to pay his taxes and belatedly acknowledges that he should have spent more time on his personal administration.
Wise plans to promote former Netflix finance boss David Wells to chairman this year. Even better it needs to find a City grandee as senior non-executive.
Other firms such as Revolut, with Martin Gilbert as chair, and Primary Bid with Donald Brydon, have taken this route.
Wise is not showing much wisdom.
