Myths of the GKN stalkers
AS THE financial crisis of a decade ago unfolded, this writer, along with several others, including Robert Peston and Jeff Randall, testified before the Treasury select committee on the role the media played in the dramatic events.
The hearing focused on the run on Northern Rock. There were also questions on why so few people saw the meltdown coming.
Among the reasons is that sections of the media were in thrall to the masters of the universe who ran our banks. Fred Goodwin was seen as the genius who had built the world’s largest bank. Bob Diamond was lauded for lifting Barclays Capital into the big league. Adam Applegarth at the Rock had pioneered securitisation of mortgages.
In the past few months, as the hostile £8bn takeover offer by Melrose for GKN has unfolded, there has been a distinct feeling of deja vu.
One accepts that, for all its great history, GKN had put up an underwhelming performance. There was a serious accounting problem with a defence contract in the United States and this led to musical chairs among executives. In spite of this, the group was still tracking higher profits each year, held a quantity of cash on its balance sheet and its net gearing (borrowing) was a modest 23pc of share capital.
It was a conservatively managed firm, with a laudable focus on the long term, in need of care and attention.
The City claque echoing the gung-ho spirit of the pre-crisis period sees things differently. GKN was a clapped- out industrial conglomerate which could do with some of the glamour treatment which pin-up City boys Melrose could offer.
One City paper pompously declared Melrose was no asset stripper. Yet Melrose’s intentions to break up GKN and sell the parts within two to three years (stretched to five after Government intervention) fit the description. For the record, an asset stripper is defined as ‘a company which purchases a corporation with the intention of dividing that corporation into its parts and selling these parts for a profit’.
In their enthusiasm for the skills of Messrs Chris Miller, David Roper and Simon Peckham, the City and media fan club put to one side warning signs which ought to alert them to a dumb deal.
Melrose has no corporate governance to speak of. Yet we know that autocratic firms are more likely to come unstuck.
THEpay, bonus and highly incentivised pay structure at Melrose could deliver £285m for the top bosses. It is greed which almost makes Jeff Fairburn’s £112m payout at housebuilder Persimmon look understandable, and certainly makes the £12m pay (cut back by 50pc) for Reckitt Benckiser boss Rakesh Kapoor look respectable.
One can already hear the cries of anguish from the governance mavens and, more significantly, of Labour’s John McDonnell, when the scale of Melrose fat-cattery hits the prints. Yet much of the politically naive City seems to think the bid is a good idea.
Finally, Melrose’s past success has been built on cheap money and high gearing. That could yet become a huge risk for investors as interest rates bubble up, credit tightens and disposals are delayed by prebid pledges.
Too many analysts, fund managers and commentators have been bamboozled by the hype of a company which, on the day it unveiled its GKN bid, had the brass neck to sack 270 workers at loss-making generating group Brush.
There is one other unfortunate strand to much of the bid opinion. GKN’s well qualified chief executive Anne Stevens has faced undisguised attacks in the media for being American, her age and her domesticity.
This is unvarnished sexism. It should play no part in investor votes when the future of a valued British engineer is at stake.
Aviva let-off
AVIVA can have nothing to fear from the Financial Conduct Authority’s probe into the failed effort to cancel £450m of preference shares.
This is the same fearless investigator that has spent a year fretting over a whistleblowing incident at Barclays, failed to bring anyone to justice for the collapse of HBOS a decade ago and is still faffing about before assigning responsibility for the GRG scandal at RBS.
Unbelievable.