My Saturday FT column, suitably updated if necessary

http://www.ft.com/cms/s/0/ca68e27a-1459-11e2-8ef2-00144feabdc0.html#axzz29MTtZREv

Chief executives dream of the “transformational” deal, the one which will turn the ugly duckling of their current business into a gliding swan, with bonuses and a share rating that reflects the true worth of the magnificent beast. It’s hard to blame them. M&A is so much more exciting than the relentless river of problems that is running a business. M&A has a beginning, a chance to bask in the media spotlight, and a conclusion. Your advisers constantly tell you you’re bound to win, and everyone loves a winner.

It may be unfair to characterise the botched link-up between the maker of Airbus and the maker of the Eurofighter, but the two planes seem to have as much in common as the two companies. Put together, the duo would have size, but look far from  airworthy. Now the thing has failed to fly, the easy response is to blame the Germans, as is traditional for most British defeats.

Unfortunately, this explanation ignores Neil Woodford, controller of 13 per cent of BAE’s shares. He ‘s a persisent critic of BAE’s enthusiasm for deal-making, and this one made him so cross that he issued a statement saying, essentially, he couldn’t see the point. Since then, other shareholders have quietly signalled that they agree. That’s enough to shoot down the deal without help from the Germans.

The City’s fantasy M&A crowd have lost no time in speculating about a different, transformational deal for BAE, with Rolls-Royce a popular choice. Rolls is highly rated today because it stuck narrowly to what it knows, carefully adding smaller, or closely-ralated engine companies. BAE is a demonstration of where deal-mnaking can take you; to a low rating and a management that doesn’t listen. Put the two together, and you’d create a British Leyland with wings.

How economic policy is made

“You sent for me, Chancellor?”

“Ah, yes. I’ve had this brilliant idea to cheer the faithful next week. We should get employees to give up their employment rights in return for shares. Less red tape, boost for small businesses, people’s capitalism, entrepreneurial society, etc. Quite take the sting out of those complaints about bolshy employees that you can’t fire. Say £2,000 minimum, and we’ll throw in exemption from capital gains tax. Should go down a storm.

Very brave, Chancellor. You seem to have priced the right to a job. But to what problem is this the solution? The smallest businesses may not be companies at all, and having to incorporate, produce accounts and communicate with shareholders will hardly help them expand. Big businesses have share schemes already. Tax-free sounds good, but it’s going to be a rare employee who cashes in a gain of more than £10,600 a year. Besides. who’s going to value the shares, at issue or at sale? Does it really make it easier to fire a poor performer if he’s a shareholder? If the business goes bust, the employee loses his job and his shares are worthless, and…

Never mind all that. It’s a policy initiative which costs almost nothing, and even if it’s worth about the same amount, it will distract attention from the ghastly mess we’re in. Work it up, will you?

Understanding accounts

The Financial Reporting Council wants company annual reports to be fair, balanced and, ahem, understandable. Fortunately, the new rule does not specify understandable to whom, which given the size and complexity of today’s tomes is just as well.

These volumes can can run to 200 pages or more. Here’s Vodafone, as an almost random example. Its 176 pages include a consolidated income statement (profit  £7,003m) which should not be confused with the consolidated statement of comprehensive income (£2,350m) or the headline adjusted operating profit (£11.5bn). This last is slightly down on 2010, but is up 2.5% “on an organic basis”.

This is kids’ stuff  compared to banks or life assurance companies, which are pretty well incomprehensible to ordianry mortals. Summarising the FRC rules, accountants KPMG add that the accounts must give “appropriate weight to the’bad’ news as well as the ‘good news’ “. Statements like “We haven’t a clue about the future” are probably not what they have in mind.

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