Takeover perks bonanza in London

Chris Burford cburford at gn.apc.org
Sun Dec 12 14:29:45 PST 1999


The arrival of the euro has intensified the pressure for the concentration of capital. Here is Will Hutton's biting comment on the bonanza that this brings to the directors of a small number of companies in the City of London.

The only weakness is a certain moralism about what is an inevitable part of the capitalist process, although one which, he is right, can be regulated.

(Other financial columns this week note that in Europe the pressure is now on for transnational bank mergers.)


>From the Observer Sunday 12 Dec


>>>
But it is over takeovers, much the most important source of income, that the rigging is most evident. Consultants KPMG recently reported that only one in five takeovers showed better share price performance after a deal than before and that in the main bids and deals were bad for companies.

Why, then, do so many take place? The answer is that they are easy. On average, 70 per cent of the shares in the top 250 British companies are owned by 20 or so insurance companies or pension funds who uniquely under British company law have no legal obligations to the companies in which they invest whatsoever.

Persuade 10 of these to sell and the company is yours. You can pay for it, as both Bank of Scotland and Royal Bank of Scotland propose to pay for Nat West, not with cash but by issuing your own shares. The fees can be set against tax. Most chief executives cannot resist the idea of running an even bigger company. Most pension funds and insurance companies cannot resist the temptation to sell for a short-term, cost-free gain; they have no obligation to do anything else. More billions for the bankers.

To unrig the market, company law should be reformed. Takeover fees should not be allowable against tax. A withholding tax should be introduced. Competition law should ferociously examine every takeover for its monopoly implications. And there should be 50 per cent income tax for earnings over £100,000, rising to 60 per cent for earnings over £200,000. I cry for the moon.

The great ideological trick is that these ideas are called rigging the market, while the truth is the opposite. The new director-general of the CBI, Digby Anderson, warmly supports the economic and social policies of this 'centre-Right' government. So, I learned last week, does Lady Thatcher, who tells friends it is continuing her agenda more effectively than John Major did. <<<

Chris Burford

London



More information about the lbo-talk mailing list