01 November 2018 by Anthony Hilton
As more companies yield to acquisition, it appears the main priority is shareholders
Almost every year some FTSE 100 or FTSE 250 company gets a takeover bid. Whether it is Sky who were bought by Comcast, or Cadbury who were taken over by Kraft 10 years ago – or any of the others in between – they all succumbed.
Shareholders are, it appears, quite happy provided they get a mark-up – a premium of between 15% and 30% or more in the case of Sky – to sell their shares.
Most shareholders in fact sell out while the bid is going on, to lock in their gains in case the victim wriggles free at the eleventh hour. Thus the final coup de grace is usually delivered by hedge funds that specialise in mergers and acquisitions and who buy the shares up and parcel them off to the highest bidder, so most bids do not in fact fail.
Although some institutional shareholders may lament the passing of another British business, they can also console themselves with doing well for their fund.
What happens to the company then is another matter. Sometimes it does well and prospers, other times it is asset stripped and laid waste. Sometimes it continues to make money and pay tax in this country; other times it is loaded up with debt and appears not to make a profit at all. But the British institutional shareholders do not have anything to do with this. They severed all connection with the company when they took the premium and sold their shares.
So why were so many shareholders exercised by Unilever when it decided earlier this year to settle on Holland rather than London, and to scrap its share price in London for the Dutch equivalent? Not only were they annoyed, but shareholders actually created such a fuss that the company changed its mind.
However, companies do this, if not every day, then certainly when they think it apposite.
Remember HSBC, the banking giant? It moved from Hong Kong to London back in the 1990s because it was nervous about Hong Kong’s coming acquisition by mainland China in 1997. Around two years ago, it very nearly went the other way. It spent perhaps six months evaluating Hong Kong to see if it would make sense to domicile there again rather than in London. Its then chief executive was particularly wedded to the idea – though in the end HSBC decided to stay put. In general, the shareholders did not seem to worry. One or two may have voiced concerns, but not so as to make a fuss.
“Most shareholders sell out while the bid is going on, to lock in their gains in case the victim wriggles free at the eleventh hour”
Or take all those multinationals who were upset with George Osborne when he was Chancellor of the Exchequer because of the way a specific tax was charged on them. Several moved or planned to move their domicile to escape the tax, only dropping the idea when the Chancellor blinked first, but again, the shareholders did little.
Then there is Reed Elsevier as it then was – now renamed Relx Group – which recently moved the other way and caused no storm at all. It was an amalgam of Reed, the then British publisher and Elsevier the similar Dutch business. They merged 30 or so years ago and they existed from that time until now with a dual-parent structure. However, as of 10 September 2018, the company decided on a British domicile, an increased FTSE weighting and a £30 billion capitalisation. Nobody seemed to mind.
Finally, what about all of those miners who apply for a London listing but do not have any revenue streams in London? Or the South African firms, when the country was a pariah, and who moved here instead.
The British shareholders took them on willingly – as indeed they should – and again there was no fuss.
This time it was different. British shareholders said that they had shares in Unilever and they did not want to sell them. Yet, if they really wanted to maintain an interest in the business, they could have bought the shares in Holland, in the same way that they can buy Siemens in Germany, St Gobain in France or Generali in Italy.
As the former head of the Investment Association, Daniel Godfrey said in a letter to the Financial Times, the company has not changed – Unilever still makes the same products, in the same factories, and to the same people as it has always done. It is only the listing of the shares which is different.
Subsequently, perhaps this was actually the issue. Perhaps shareholders wanted the company to stay in the FTSE 100 index because they assumed that there might be a takeover bid one day soon, and they wanted to be in on the action when it came – 30% premiums and all that.
There was, after all, a halfhearted bid 12 months ago from a private equity buyer which Unilever gave short shrift to.
Unilever is in many ways a stodgy business. It or someone else might well think it could be broken up and sold, and that might indeed please some shareholders. Whether that is a good reason to make the company do an about-turn and stick with London is a different matter, but it is shareholders rather than companies which seem to matter these days.