Go slow for LSE takeover
THE very idea that somehow the £21bn ‘merger of equals’ between the London Stock Exchange and Deutsche Boerse would be done and dusted before the Brexit referendum was always a fantasy.
The regulatory obstacles were always going to be considerable. Brexit and EU politics and rivalry were always going to rear their head.
Along the way the proponents of the deal in London and Frankfurt have played a skilful game. They managed to keep a potential party pooper, the Intercontinental Exchange (ICE), at bay by making due diligence as difficult. They also recruited to the cause Chancellor George Osborne and, more surprisingly, that wily old City fox Michael Spencer of NEX (formerly ICAP). Osborne was wrong on the failed Pfizer takeover of Britain’s AstraZeneca, and NEX potentially would make a better London partner for the LSE, keeping it bulletproof from stifling Frankfurt capitalism.
It has long been my view that a Leave vote would kill the deal. The burghers of Frankfurt would not tolerate an enlarged exchange with the top company based in the City.
We can see from Berlin’s current bullying treatment of Greece that, when it comes to financial leadership, Germany wants to be in the driving seat. The federation of entrepreneurs in German federal state of Hesse, home to Frankfurt, have publicly repudiated the headquarters of a merged exchange being in London. Ulrich Caspar, a member of the Hesse parliament, has stated that under ‘no circumstances’ should the merged enterprise be based in London.
The possibility of a London-Frankfurt axis is causing anxiety in France. Gerard Rameix, current chairman of the French market authority AMF, says he would not want to see Paris-based Euronext marginalised by the merger. So far we have heard little from the prudential or competition regulators.
The assumption seems to be that once the deal documents have been dispatched then the tender offer, which will allow DB shareholders to swap their holdings for shares in the merged company, can be launched. What we know, however, is that prudential regulators will have concerns about who stands behind the clearing operations should a major transaction go wrong.
We also know that the EU competition commissioner is never a pushover. In much the same way as it forced Lloyds Banking Group and Royal Bank of Scotland to discard branches, it may regard an all-powerful Anglo-German exchange as anti-competitive.
Much of this may seem like wishful thinking by those of us who have argued for the London Stock Exchange’s independence.
The lesson of Britain’s open door policy to overseas takeovers is that they need to be scrutinised thoroughly to make sure they are in the national economic interest.
That is the least we can expect after such cross border disasters as Royal Bank of Scotland’s purchase of ABN Amro in the teeth of the financial crisis.
Trench warfare
BURBERRY chief executive Christopher Bailey cannot be blamed for the crumbling Asian demand which has carved a hole in the luxury raincoat group’s profits.
But he can be criticised for skulking in the shadows and leaving his lieutenants to try to explain away the company’s problems.
He wanted the job of chief executive alongside his role as head designer when Angela Ahrendts left for Apple in 2014, and chairman Sir John Peace gave him the chance.
Two years at the helm ought to have been enough time for someone paid £8m a year to pluck up the courage to brief the financial press. Instead, he is wrapped in tissue paper, let out under only the most controlled circumstances and the company is now talking about drafting in more help for his listing leadership. What a contrast between Bailey and his feisty, open and highly regarded American predecessors, Rose Marie Bravo and Ahrendts.
Burberry is taking steps to change things. Costs are being cut, fashion ranges simplified and distribution arrangements through US department stores reshaped so as to shore up its luxury reputation. The company is also seeking to calm investor anxiety with the promise of progressive dividends and a modest £150m share buyback.
No one can dispute Bailey is a fashion genius and a huge credit to creative Britain. But if he wants to survive as chief executive he needs to show he has the necessary willpower.
Jobs galore
EVER since Mark Carney arrived at the Bank of England in 2013, Britain’s jobs market has confounded the governor’s predictions.
A week after he warned of a Brexit ‘technical recession’ the April figures show some 44,000 new jobs were created in the first quarter, the unemployment rate remains anchored at 5.1pc (half that in the eurozone) and numbers on the dole fell by a modest 2,400.
His former employer Goldman Sachs has lowered its annualised growth reading to 2.4pc in March (down from 2.7pc in January).
Still a long way to go before it heads into negative territory…