New curbs for foreign bids

BrITAIN has long prided itself on its model of laissezfaire capitalism and openness to takeovers. But it is a system that has been widely abused by unscrupulous domestic buyers such as Dominic Chappell and retail Acquisitions, who took BHS off the hands of Sir Philip Green, and global companies such as Kraft (now Mondelez) which plundered Cadbury.

As Britain heads for Brexit and foreign buyers seek to take advantage of sterling’s depreciation, it is only right that the rules governing takeovers are tightened.

Under proposals unveiled by the City referee, the Takeover Panel, and endorsed by Business Secretary Greg Clark, the fast track to takeovers which allowed Japan’s Softbank to snap up the nation’s top tech company ArM, will be slowed. The Panel will require buyers to make specific commitments on meeting pension obligations, maintaining research-and-development and the location and use of headquarters.

Past deals have resulted in emblematic companies including Scottish & Newcastle, British Oxygen, P&O, the airports owner BAA, Pilkington and four of the big six energy companies falling into overseas hands. As of writing, three quoted high tech firms – Worldpay, Paysafe and engineer Aveva – are in the sights of foreign buyers.

The rules, however, will be too late to protect r&D and intellectual property controlled by these firms. A requirement that buyers offer watertight guarantees is desirable. But how the pledges made in takeover documents are policed is open to question. The main weapon deployed by the panel in the past has been to ostracise those who breach the rules. How enforceable breaches would be in the courts, and who would bring the charges, is not clear.

There is one other criteria which I would like to see. That is an economic review of the impact of deals on UK plc. Such probes and assessments used to be undertaken by the old Monopolies & Mergers Commission.

It would be terrific if the successor Competition and Markets Authority would pickup this batten. Over to you, Mr Clark.

KPMG let-off

ONE of the big black marks against auditor KPMG has been erased by accounting watchdog, the Financial reporting Council. The slug-like FrC has cleared KPMG’s audit of HBOS in a relatively speedy 15 months.

The FrC says the clean audit of HBOS by KPMG was ‘not unreasonable’ at the time because extreme market conditions could not have been anticipated.

Is that really the case? KPMG should have recognised all was not well. Bear Stearns had collapsed. There was massive intervention by central banks in the money markets and the credit crunch meant that financial institutions did not trust each other. Northern rock had failed and been nationalised and because short-term lending markets were moribund. The Bank of England was (at a price) taking mortgage assets onto its books in exchange for cash.

If KPMG partners and the FrC regulators couldn’t recognise that the whole financial system was on a precipice in 2008 then we should consider them unfit for purpose. The stupidity of borrowing short and lending long should have been evident to auditors giving HBOS a clean bill of health.

Indeed, one of the biggest tasks for chief executive Antonio Horta-Osorio when he took over Lloyds Bank (incorporating HBOS) was too end risky dependence on short-term finance. The FrC verdict may seem like vindication for KPMG. But it just exposes shortcomings at the audit regulator and suggests the hurdles for a tribunal finding of misconduct are ridiculously high.

Reckitt wake-up

AN unsatisfactory element of corporate governance in the UK is the tendency of boards and shareholders to ignore the rules until things go wrong.

Adrian Bellamy has been chairman of reckitt Benckiser through an extraordinary period of expansion and reward for shareholders. But 14 years in the top job was too long and he effectively went native, failing to rein in excessive pay (until the last year) and allowing ethical lapses to pass unchecked. It has taken the collapse of its South Korean offshoot and a setback to growth for Bellamy finally to give way.

He is to be replaced next year by Christopher Sinclair, a non-executive at reckitt, and executive chairman of Mattel, who looks a reasonable choice. He has had the good sense to step down from Mattel and concentrate on keeping reckitt on the straight and narrow.