Most old-style hostile takeovers end up destroying value, or so the academics tell us. But at least the battles produced a clean fight, a full airing of arguments and a definitive vote by shareholders at the end. The fashion for bear-hugs, or enticements to combine, can be maddening – and the current dust-up in the building world between Carillion and Balfour Beatty is exactly that.
The two companies have been squabbling over strategy and cost savings since friendly merger talks collapsed a fortnight ago. In this week's episode, Carillion chief executive Richard Howson has been trying to encourage Balfour investors to rise in rebellion against their board and tell chairman Steve Marshall to get back to the negotiating table.
Look, says Carillion, there's £175m of annual cost savings waiting to be scooped up; Ernst & Young has signed off the number and we've got a management team that kept its financial promises after consuming Mowlem and Alfred McAlpine.
Those half-wits at Balfour, as Carillion doesn't quite put it, have been layering on profit warnings by the trowel for the past two years, almost as fast as they've been shedding chief executives. Hell, Marshall is now planning to sell his best business, US design consultancy Parsons Brinckerhoff.
In reply, Balfour says the £175m figure is not all it seems. "Cost savings driven by shrinking the business should not be confused with synergies," it says archly. And don't forget the £225m cost of achieving those annual gains. There is plenty that can done under our own steam, argues Balfour; and, remember, Carillion is the smaller company and has never attempted a deal of this size. As for Parsons, what's wrong with selling via a competitive auction if the sale price is greater the purchase price three years ago?
Who's right? Carillion has the best jabs but the arguments feel too much like a dance around the real issue. Balfour investors should stick to first principles. This proposed deal, even if it started out as a merger, is now more like an all-share reverse takeover with only a skimpy premium for control.
That is surely less than compelling for Balfour investors, who haven't even seen a rigorous assessment of the value in their company's PFI investment portfolio. Under a full 60-day bid timetable, shareholders might also have to time to learn what price somebody is willing to pay for Parsons.
It's unfortunate for Carillion that it is too small to back its confidence with a hostile offer. But Balfour shareholders should decline the invitation to rebel. Whatever Carillion says about the solidity of the £175m of savings, there must be a risk that the prize shrinks amid the complexity of running a combined company that would start life with 80,000 employees.
Instead, Balfour investors should tell Marshall to find his new chief executive, pronto, and give the company one last shot at self-improvement. If that doesn't work, there's always a chance a bidder willing to pay for control will turn up.
Bank's rising interest could be devastating
Here's an interesting statistic for Mark Carney and his Bank of England colleagues to chew over on their summer holidays: since the end of post-2008 recession, three central banks in the developed world have tried to take the road marked "normalisation" by raising interest rates and each has been obliged to reverse direction quickly.
Dhaval Joshi of BCA Research pointed this out in a well-timed note this week. Sweden, like the UK, cut interest rates from 5% to almost zero in a hurry in 2008. Then, in 2010, the Riksbank started raising again but it only got as far as 2% because the impact on the Swedish economy was "devastating", as Joshi puts it. Outright deflation occurred. The central bank has had to take base rates all the way back down to 0.25%.
It was a similar tale in Norway, where the economy couldn't stand a staggered one percentage point increase; loosening followed quickly. Even Australia, which, as Joshi says, is relatively immune to the eurozone's debt woes and hasn't had a recession for 25 years, didn't get very far before turning backwards. There was a hike from 3% to 4.75% in 2009-10, followed by a retreat in 2012; the policy rate is now 2.5%.
Given those examples, you can understand why Carney & co, in the face of lack of growth in wages, seem so hesitant again about the first rise. Once a central bank has taken that first step, it is saying, in effect, that more hikes will follow and that the economy can stand a higher cost of borrowing.
The Bank will have to move at some point if the UK economy keeps up its current form. But, for a governor struggling to shift the "unreliable boyfriend" tag, it would be embarrassing to embark on a march towards, say, 2.5%, get halfway and then turn back. More waiting and seeing at base camp may continue to look the safe option – perhaps even until after the general election next May.
Big firm wants to become minor player
What's this, a big miner that wants to be smaller? After a decade and a bit of deal-making, BHP Billiton has decided it doesn't want to own some of its mines. Chief executive Andrew Mackenzie's game is "portfolio simplification". This is quite a turnaround from the days when BHP, with Marius Kloppers at the helm, was trying and failing to gobble Rio Tinto and then PotashCorp.
A demerger of aluminium, nickel and manganese assets might be worth $15bn, think the analysts, which sounds colossal until you remember that BHP is worth $180bn. The company will still be big in iron ore, copper, coal and oil and gas, and hasn't given up on potash; it will remain the world's biggest miner.
A straightforward demerger doesn't create any value as, on day one, the same assets will still be owned by the same shareholders. So why bother? It makes it easier to improve productivity and performance, says BHP.
That sounds terribly vague, but anything that smells like greater financial discipline is rightly welcomed by mining investors these days. Rio's disastrous top-of-the-market $38bn cash takeover of Alcan in 2007 remains the textbook example of how one bad deal can ruin a decade of digging.
50p to stop hanging on the telephone
Whose bright idea was this? Charging customers 50p for the privilege of jumping the queue when ringing up to complain, or just to ask for technical help, is surely a guaranteed way to infuriate people.
The excuse offered by mobile phone company EE is that it's part of an improvement in service that has seen 1,000 jobs return to the UK from call centres overseas. What's that got to do with anything? It's the principle of queue-jumping that will enrage punters.
We tolerate speedy boarding on budget airlines, of course, but EE's innovation will be seen as a sneaky attempt to prompt a large number of people into paying a small sum of money to get what they thought they were paying for anyway. It would be amazing if the policy weren't dropped quickly. EE should ask the energy companies where a reputation for underhand behaviour leads.
