So much for Katherine the Great.
Katherine Garrett-Cox, the Alliance Trust chief executive, has capitulated at the 11th hour to the agitators from Elliott Advisors. The US hedge fund, waving a 12% holding, wanted three new faces on the board. Alliance has allowed two, Anthony Brooke and Peter Macnamara, despite spending the last month describing the nominees as short-termists who couldn’t be trusted to act independently. The so-called compromise heavily favours Elliott: from its point of view, two out of three ain’t bad.
Alliance’s board crumbled, one assumes, because it knew the vote in Dundee would not produce the hoped-for display of loyalty from the small army of retail investors. The whisper says the poll on the trio of Elliott-nominated non-executives was too close to call. Thus a negotiated retreat, and cancelled resolutions, became the board’s least embarrassing option.
The terms require Elliott to refrain from agitating against the board and management until after next year’s annual meeting. There are also “certain mutual non-disparagement undertakings”. Since the shareholders aren’t allowed to see this novel document, they’ll have to guess as to its contents. Alliance, presumably, is not allowed to refer to Elliott’s taste for seizing Argentinian naval ships in disputes over debt. And the hedge fund, let’s guess, can’t shout about the unfairness of Garrett-Cox regularly collecting £1m-plus a year despite Alliance’s middling investment performance.
Next May, battle is allowed to resume. In effect, the 127-year-old investment trust has given itself 12 months to demonstrate that it deserves to exist in current form. If not, the debate about outsourcing fund management to save costs will return with a bite. So, too, will be the idea of selling two subsidiaries.
Spare a thought for Alliance small shareholders. They thought they were being offered a real vote and a chance to express an opinion on rival analyses. Instead, whether they like it or not, they must live with a settlement negotiated behind the scenes. Elliott’s nominees, they were told by the board, were merely yes men; but Brooke and Macnamara, who never uttered a word publicly to address the criticism, will be welcomed anyway.
At the weekend, Garrett-Cox was quoting Churchill and looking forward to victory. Ho, ho.
Standard Chartered’s smarter approach
Compare and contrast. HSBC made a song and dance last week about its potential move away from London. It announced a formal review of the bank’s domicile, citing everything from the cost of the UK bank levy to the uncertainty created by a possible referendum on EU membership. It also created a stir in Hong Kong where the local financial regulator, possibly under orders from Beijing, said it would adopt a “positive attitude” if HSBC wants to return.
Standard Chartered, by contrast, took a softly-softly approach yesterday. The finance director’s admission that the domicile question is “under review” was the extent of it, even though Standard would seem to have more reasons to leave than HSBC. It does virtually no business in the UK, thus its proportionate hit from the bank levy (about £350m this year) is greater. And its two big shareholders favour a switch to Singapore – vocally, in the case of Aberdeen Asset Management.
Standard’s quiet approach, designed to play down expectations, is the smarter one. Switching domicile is not easy. Aside from the up-front cost of upheaval, there are tax implications beyond the levy. And would a new regulator demand fatter capital cushions? Would the cost of capital rise?
HSBC, it might be argued, has to inform its shareholders if it is reviewing its domicile. True, but the tone from the top was almost gung-ho. At the end of the process, HSBC may find it has marched its shareholders to the top of the hill only to march them down again. Politicians in Hong Kong and Beijing would not be impressed by the big tease, and their counterparts in London may conclude that it’s safe to tickle the bank levy higher yet.
Keep Whitbread intact after Harrison
It has been a very decent innings for Andy Harrison at Whitbread, owner of Premier Inn and Costa Coffee. The chief executive isn’t departing quite yet, but the company’s five-year performance statistics currently look excellent: earnings per share have increased at 17% per annum.
Harrison’s best decision was to resist the clamour from one corner of the City to split Whitbread in two. The demerger idea was promoted mainly by jobbing investment bankers and analysts, rather than Whitbread’s own shareholders. But Harrison did the right thing by quashing the talk before it could gain momentum.
Budget hotels and coffee shops have little in common but the combination works for Whitbread. The stability of Premier Inn’s cash flows has helped the company take a long-term approach to the task of beating Starbucks in the UK, a job comprehensively achieved. The same thinking should apply now that China is the focus for Costa’s expansion.
Once upon a time, there may have been a “conglomerate discount” at Whitbread, as the City jargon has it, but it has been eliminated by a near-quadrupling of the share price over five years. Harrison’s successor – Costa boss Chris Rogers is the leading internal candidate – should commit to keeping Whitbread intact. There is no need for financial engineers.
This article was written by Nils Pratley, for theguardian.com on Tuesday 28th April 2015 19.27 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010