The fight for Direct Line
Reinvigorating London share markets so they are more willing and able to back UK start-ups and nurture British companies is critical to Jeremy Hunt’s agenda as Chancellor.
the idea of the British iSa, unveiled in the Budget, is part of a broader effort to back UK stocks, which includes more transparency on pension fund investments.
the idea of capturing British pension money for backing UK tech, such as green technologies, is also on the growth menu of Shadow Chancellor rachel reeves.
the focus on British-listed equities comes at a moment when several FtSe 350 companies find themselves under siege from overseas buyers. in every case, the premium looks generous.
But we shouldn’t forget that London wrongly has suffered a Brexit discount to new York and other financial markets, even though City and business services are leading the world. there is good reason to think that over time the cyclical discount will vanish.
that is why it is ever more imperative that UK boards show dogged determination in batting away opportunistic takeovers, especially from firms with muddled ownership. a key brand at insurer Direct Line is Churchill with its famous bulldog logo. it is incumbent on the group’s chairman Danuta gray to show her Yorkshire grit and see Belgium invader ageas off the field of battle following the launch of a £3.1bn bid.
it is easy to dismiss Direct Line as just another general insurer in a crowded field where competition has been blown wide open by comparison sites. that is to ignore a special place in the UK marketplace.
as an offshoot of the royal Bank of Scotland, created by serial insurance innovator Peter Wood, it was a game changer.
When it came up with the idea of dealing directly with consumers, using the telephone, it broke with the old practice of brokers placing policies and the distortions of commission structures.
it is ironic that having broken the mould, Direct Line has been undermined by regulatory breaches and failure to move speedily enough into the digital world.
the arrival a week or so ago of adam Winslow from aviva as chief executive should encourage investors that if Direct Line were to modernise its systems and simplify brand options, a wounded enterprise can be turned around.
Direct Line also benefits from a share register where respected UK funds Schroder and Liontrust could help to stymie an unwanted deal.
Too often, short-term performance decides these matters and big battalion investors are happy to take the cash and run. in the current political atmosphere, when getting behind London markets and asset management is so important, UK institutions need to show patience and fortitude or face the wrath of Whitehall.
Bidder ageas presents itself as a good owner with bags of insurance experience. But it is more complicated than that. one of its previous UK ventures, ownership of Kwik-Fit (UK), which offered motor and home insurance, ended up in the High Court amid allegations by ageas that it had overpaid.
ageas ownership also needs to be closely scrutinised. the insurer was a breakout from the trans-european financial group Fortis which was rescued in the great financial crisis.
among the current shareholders is the opaque Chinese holding company Fosun, and a rump stake is still held by the Belgian government.
as honourable as ageas’s intentions might be, placing the fate of 10m customers in such hands does not fill one with confidence.
it is daft that the UK, with a history in insurance dating back to the coffee houses of the 17th Century, should be so uncaring about its legacy.
there is also reason to be disgruntled about the way in which the board of telecoms concern Spirent headed by Sir Bill thomas, a Labour Party small business adviser, so quickly agreed to a bid from a US competitor viavi.
valuable British r&D and tech should not be sacrificed so easily.
Company chairmen too easily ignore the national interest.