City must not rush to welcome the ‘Bakka brothers’
The “Bakka brothers” are back and the City is ready to welcome them with open arms. You probably haven’t heard of Lydur and Agust Gudmundsson but in their homeland the brothers are notorious for their part in pushing the country to the brink of financial ruin.
The pair were among a handful of “Viking oligarch” trailblazers from Iceland who made waves overseas during the country’s extraordinary debt-fuelled boom, snapping up foreign assets at a ferocious rate.
When the music abruptly stopped in 2008 and Iceland imploded, the brothers also came unstuck. They were the co-founders of Exista, which was the biggest shareholder in failed lender Kaupthing. Lýdur was sent to prison and Agúst was sued by investors in the bank.
Both had assets seized but they managed to cling on to Bakkavor, a giant supplier of ready meals to the likes of Tesco, Waitrose, Marks & Spencer and Sainsbury’s.
Now, the brothers are plotting their return with a £1.5bn float of the company in London. Great news for the Square Mile, which has been suffering from a dearth of new share issues stretching back several years now. There has been a burst of IPO activity in recent weeks and, amid all the uncertainty of Brexit, it is hugely reassuring that the UK hasn’t lost its allure overseas.
Yet there is something slightly troubling about London’s apparent willingness to accommodate those with less than exemplary track records. The capital has always prided itself as a place that demands companies meet especially high standards. Rather than merely a place to buy and sell shares, the London stock market is supposed to be a bastion of strong corporate governance and ownership rights that help to protect investors. But as the world’s big stock exchanges have become engaged in an increasingly fierce battle for global dominance, it feels like the bar keeps being lowered, often with disastrous consequences.
The unravelling of Kazakhstan mining giant Eurasian Natural Resources Corporation and its Indonesian rival, Bumi, left shareholders nursing huge losses. Both were blamed on the influence of company insiders and controlling shareholders but, having tightened the rules, standards look to be slipping again. Just look at how regulators have gone out of their way to make it easier for Saudi Aramco to list in London. It sends the wrong message.
The “Bakka brothers” have built an impressive business empire but they’ve left a trail of destruction in doing so. Their penchant for debt almost sank Bakkavor back in 2012, but bondholders rescued the company through a controversial debt-forequity swap that left many of Iceland’s pension funds and banks as the owners. They quickly bought it back and have skilfully turned it around. Debt is now under control and Bakkavor is arguably the number one player in the ready meals market.
Yet given their highly chequered past, does that make them suitable custodians of a publicly listed company? Regulators and exchange officials should be poring all over this, demanding guarantees that London’s integrity will be upheld. Instead, the red carpet will almost certainly be rolled out with customary ease.
P&G shows laudable resolve
Nelson Peltz is having none of it. Failure to win a seat on the board of consumer products Goliath Procter & Gamble is not a defeat, the veteran investor insists, but is “as close to a dead heat as you can find”.
Try telling that to P&G, which just spent £100m resisting Peltz’s demands, or any other big corporate for that matter. In boardrooms around the world, this will be seen as a significant victory in the growing battle against activist investors.
Make no mistake about it, this was a fierce fight that no side wanted to lose. Peltz’s Trian Partners bet $3.5bn (£2.7bn) – roughly a quarter of its fund – building a stake in P&G, and a further £60m on advisers and shareholder mailings, in a bid to win the largest proxy war America has ever seen.
And although Peltz likes to consider himself less confrontational than some of his big rivals, that didn’t stop him blasting P&G’s brass as “insular” and fiddly in the face of lacklustre growth, or claiming that the 180-year-old company had “lost its soul”.
Peltz is unlikely to go away but other big companies will be emboldened by this symbolic victory. Where once most corporate giants seemed out of the reach of activists like Peltz, almost anyone is fair game today. Just look at the sleepy beasts that have been shaken from their slumber. Peltz alone has gone after DuPont, General Electric and PepsiCo in recent years. With a stock market value of $225bn, P&G was the largest company ever to come under attack.
So far this year, activists have deployed $45bn, nearly twice what was spent during the whole of 2016, according to data from investment bank Lazard. Elliott, arguably the most feared of all the activists, looks to have decided that most of the FTSE is a potential target. Despite an ongoing battle with BHP Billiton, it is reportedly stakebuilding in Smith & Nephew. Activists have a crucial role to play in holding under-performing companies to account. But many adopt a get-rich-quick approach that puts cost-cutting ahead of value creation.
Most firms will be terrified at the prospect but P&G has demonstrated that even the fiercest assaults can be repelled.
‘Regulators should be poring all over this but instead the red carpet will almost certainly be rolled out’