These are strange days in the lucrative world of M&A. The shareholders are revolting, and the share prices of companies involved with mergers and acquisitions are not behaving as the playbook dictates. Last week, for example, Deutsche Borse’s ill-starred attempt to take over the London Stock Exchange finally collapsed under the weight of its internal contradictions.
It fell to the European competition commissioner Margrethe Vestager to deliver the coup de grace (we shall miss her forensic independence when we’ve gone) but far from sliding back in disappointment, the LSE share price scaled new heights. Still cheap without a bid, says RBC.
Then there is Unilever; the share price without a bid is now above the proposal from Warren Buffett and Kraft. One of the world’s most analysed companies, Unilever is now valued at £20bn more than a few short weeks ago, even though a takeover looks more unlikely than ever.
At the other end of the scale is Tesco’s cosy deal with Booker. Richard Cousins, Tesco’s senior independent director, felt so strongly that CEO Dave Lewis has quite enough to do without buying more stuff that he quit. Two major shareholders now agree with him.
Finally, there is the match made in Scotland between Standard Life and Aberdeen Asset Management. Perhaps the enthusiasm for the deal from the local government should have alerted us, but the market’s (interim) verdict is that the two-headed merger will destroy value rather than creating it. The combined value of the pair is now almost £1bn below the total just before the deal was announced.
So far, there is no sign of a shareholder revolt here, perhaps because life insurance is harder to understand than food retailing. Still, strange days indeed.
They’re jolly productive, really
Britain’s low productivity is the fault of its bankers (among others) rather than those who actually make things, the Office for National Statistics revealed this week. How unfair. Look, for example, at the productivity of the crew from Bank of America Merrill Lynch with their tireless work for their faithful customer, the defence manufacturer Cobham.
Three years ago BoA advised on the $1.5bn takeover of Aeroflex, a US rival, taking a highly productive fee. Sadly, nobody noticed that Aeroflex had, ahem, flexed its balance sheet, not necessarily in a good way. In addition, the financial structure of the deal, surely the bank’s area of expertise, was not a success. Still never mind, BoA was there to help with a rescue rights issue, pitching the price so its underwriters bore virtually no risk, and taking a productive slice of the £20m fees.
Cobham’s woes continued, but BoA was there throughout. The latest rescue rights, finally launched this week, raises £512m. The new shares are underwritten at 75p, a socking 41 per cent discount to a price which had already adjusted in anticipation of the forthcoming issue, so the old shares barely moved from 128p on the news. There is a vanishingly small chance of the underwriters being called upon, and the £15m which sticks to the shovels of the banks is effectively another tax on the owners of the business. That’s productivity!
It’s financially radioactive
Just how much worse does it have to get before we see that nuclear power will never pay? This week Westinghouse filed for Chapter 11 bankruptcy protection in the US, as its once-mighty parent Toshiba tries to to avoid being brought down by its nuclear construction subsidiary.
Despite this industry’s relatively trouble-free half century in the UK, it is clear that it will never make a profit, as the combination of rising safety demands and decommissioning costs will always outrun the gains from experience and technological progress. Almost every nuclear construction project in the world is running late and over budget.
Yet the British government is persevering in the face of the evidence from all sides with the money sink that is Hinkley Point, and has not ruled out building more power stations like it. There are other ways of keeping the lights on at a price we can afford. It is surely time to admit defeat on nuclear.