There’s nothing your average arbitrageur likes better than a big, juicy takeover bid. It offers him the chance to buy one side, sell the other and pocket the difference. Takeovers don’t come any bigger or juicier than Royal Dutch Shell’s £55bn offer for BG Group, yet he doesn’t seem to want to play.

The Shell price dropped on the news, and has carried on falling since. The BG price jumped, but for almost four months, the gap between the value of the offer and the BG price has remained almost constant at around 10 per cent. In other words, there’s £5.5bn of value to be picked up between now and the deal’s closure.

It’s not that simple, of course. Regulatory hurdles abound. China, a big importer of LNG, BG’s speciality, is a complete unknown. Completion is many months away, and Shell’s yield is nearly 5 per cent more than BG’s. A quarter of the bid is in cash, which is either a handy slice of insurance or a dilution of value, depending on your view of the oil price.

The analysts at Deutsche Bank are baffled by the missing arbs, but reckon the £17bn that has been wiped off Shell’s market value since the bid is overdone, and that as the LNG projects come on stream, a “cash wall” is coming, to support a 6.4 per cent dividend yield. Their preferred route in is via BG, the risks notwithstanding. So come on, you arbs…

Plenty of nagging doubts

Oh, goody,  another book on the banking crisis. Ivan Fallon’s Black Horse Ride would be better entitled Black Horse Down, as it chronicles how Lloyds TSB stumbled to its knees and is only now trying to get up again.

The drama of the near-collapse of HBoS, following the Bank of England’s refusal to underwrite a Lloyds rescue of Northern Rock, has been pretty well picked over, although the narrative can still shock. If the Financial Conduct Authority’s warts-and-all report is ever published, we may learn a little more, but it’s unlikely to help those Lloyds shareholders still dreaming of compensation.

This book certainly doesn’t. It reasserts how Lloyds was obliged to do the prime minister’s bidding, with chairman Sir Victor Blank and his chief executive Eric Daniels faced with Hobson’s choice. Mr Fallon is more interesting when it comes to documenting the febrile, almost manic atmosphere before the collapse. Almost every bank chief executive wanted to merge, provided he could be in charge afterwards. Lloyds, for all its undeniable prudence in the face of provocation from the deal-makers, was in there with the rest of them.

It’s dispiriting stuff. Customers, merely fodder for the empire-builders in the mine’s-bigger-than-yours contest, get barely a mention. As we have learnt subsequently, hardly a thought was given to whether it was possible to run such vast, international empires.

Banks are always under siege from those who live by dealmaking, because their size means that a tiny slice of the price translates into millions for the promoters. Some deals can help customers and shareholders, but it’s almost accidental if they do. Lloyds has ended up with a UK market share beyond anything it could have dreamed possible before the crisis, but it may have cost Sir Victor the chance to become Lord Blank (of Cheque) however sympathetically he’s portrayed here. It’s a jolly good ride, though.

A Chinese burn from the treasury

The Private Finance Initiative has not been one of the outstanding political inventions of the century. Conceived as a way of making the public sector more efficient by applying private sector methods to projects, it has turned into a magnificent moneyspinner for the financial engineers. PFI financing totals £57bn, and the vehicles are sliced, diced, bought and sold almost daily.

Prices are seldom disclosed, perhaps to avoid revealing just how lucrative the deals have been. In 2012 the treasury found that many were “tarnished by waste, inflexibility and lack of transparency”, but of course it’s all different now. Indeed, PFI has been judged such a triumph that the chancellor is sending a delegation to show the Chinese how it’s done. That should hold their economy back a bit.

This is my FT column from Saturday

 

 

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