City must not rush to welcome the ‘Bakka brothers’

The Daily Telegraph - Business - - Business Comment - BEN MAR­LOW

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’

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