Money Week - UK (2021-10-08)

MONEYWEEK 8October 2021 moneyweek.com

18 Cityview

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Who’s getting what

●Investorsin

Americanparcel-

deliverygiant

FedExhave

approveda$54m

payplanfor

billionaire

chiefexecutive

Fred Smith

(pictured), says

Reuters. Shareholders

at therecentannual

meetingalsonodded

throughnon-binding

proposalsrequiringmore

disclosuresoncompany

lobbyingandfor

shareholdervotingon

overly generousseverance

packagesforsenior

management, knownas

“goldenparachutes”,that

oftenpayoutthree

timessalary

andbonus.

●TheBank

ofIreland’s

chieffinancial

officer,Myles

O’Grady,has

handedinhis notice

tojoin Irishfoodretailerand

wholesalerMusgraves,

saysTheIrishTimes. The

bank’s chiefexecutive,

FrancescaMcDonagh,

blamedpayrestrictionsin

thedomestic banking

sectorforhis decisionto

leave. Executivepayis

largelycappedat €500,000,

withsomeexceptions.

O’Gradyearned€531,000in

totallastyear, while

McDonagh’s basicpay

cameto€950,000.

●Deloitte’s 70 0equity

partners in Britainwill

receiveanaveragepayout

ofaround£1meachafter

profitsattheaccounting

firmreboundedtoarecord

£8 68 ,000perpartner,says

theFinancialTimes.That

figurewasalsoboostedby

about£200,000duetothe

sale ofDeloitteUK’s

restructuringarmto

private-equity-backed

Teneo. Last year,the

averageshareofDeloitte’s

profitscameto£731,000,

lessthanthe£ 88 2,000paid

outperpartnerin2019.

Niceworkifyoucangetit

Many ofthehighest-earningbosses at

non-departm enta lpubli cbodies,better

knownasquangos,arepaidsix-figure

salarie sfor pa rt-timeworkthatleaves

themfreeto pursue otherlucrativ eroles

atprivatecompanies,saysTheSunday

Times.DrRosRivaz,chairoftheNuclear

Decommissionin gAuthority(NDA), an

agencyresponsibl eforcleaning upBr itain’s

earlie stnuclearsites,earns£150,000for

twodays’ work aweek.Rivas alsoholds

fourotherseniorpositionsinth eprivate

sector,earning heratleastanother

£165,000lastyear.TheNDA’sprevious

chairman,Tom Smith, wasalsopaid

£150,000for atwo-day week.Elsewhere,

SallyBalcombe,CEO ofVisitBritain,was

paid£235,000lastyear, whilealsoserving

asadirectorofluxuryhotelfirmMr&Mrs

Smith.MarkRussell,chairmanofDefe nce

Equipment&Support,earns£150,000a

yearfor athree-day non-executive role

overseeing militar yprocurement.

withtherestoftheworld.America’s

S&P 500 andEurope’sStoxx 600 have

risen 65 %and 18 %respectivelyinthe

lastthreeyears;theFTSE 100 hasfallen

by8%overthattime.Ittradesonjust

12 .6timesforwardearnings,compared

to 21 timesand 16 timesrespectivelyfor

thosetworivals.Inotherwords,ifyou

wantabargain,andprivate-equityfirms

arealwayslookingforoneofthose,then

Britainistheplacetocome.

Let’sgettheFTSEto10, 000

Ontopofthat,ourmarketisrelativelyopen

comparedtomostothers.And,althoughit

mightnotlooklikeitrightnow, withfuel

shortagesacrossthecountryandlabour

shortagessnarlingupsupplylines,theUK

hasgoodgrowthprospects.Itisrecovering

fromthepandemicasfastasmostofits

majorrivals,itwillsoonhaverecovered

fromthedisruptionofleavingtheEU,and

ithasplentyofnewbusinessesandlevelsof

venture-capitalinvestmentfarhigherthan

anywhereelseinEurope.

TheCitycan’t–andshouldn’t–do

anythingaboutitbeinganopenmarket.

Itwouldbecrazytoputupbarriersto

takeoverbids.ButitcanfixthefactthatUK

equities aresoc heap.How?Byincreasing

theweightingoft he UKin th etypical

portfolio, andespeciallyinthe giantpension

fundsthatdominatethe market. It is time

theUKwas re-rated andput on apar wi th

othermajormarkets around theworld.If

theFTSE100 wasat10,000wewould n’t

seeany moretakeover bids.Theywould be

waytoo expensive.Thatmay seem adistant

prospect, but that is simply ameasure of

howpoorlythe UKmarket ha sdoneover

thelast 20years. Onceit hits thoselevels,

andthere is no reason whyitshouldn’t, the

wave oftakeoverswill stop dead in itstracks

–but until it does,theywill keep on coming.

will belong to ahandfulof privat e-equity

firmsbased in NewYorkand Tokyo.

Plenty of investme nt institutions in the

City will feel uneasy about that.After all,

therewon’t be many companiesleftfor

British investorstop ut theirmoneyinto.

And, of course,the privat e-equity firms

don’thaveagreatrecord. Lots of businesses

aredrained of cash,starved of investme nt,

then dumped back onto thestockmarket

afew yearslater.And yetthe City also has

averyeasyway of bringing thewaves of

takeoverbidstoasuddenstop.Simplystart

valuingBritish equities properly.

Thereisnogreat mystery about why

thereare so many takeovers rightnow.Itis

because theUKmarketischeap compared

When biddingfinallyclosed last weekend,
theauction of Morrisonsturnedout to
have been less exciting than many of the
speculators ha dbeenhoping. Clayton,
Dubilier &Rice, theoriginalbidder, walked
away with th eprize at 286p ashare,less
than theshareswere tradingatinthe week
beforethe auctionclosed(seepage7). At
£7bn,whether theretailer will turnout to
be agreat investme nt remainstobeseen.
TerryLeahy,the former Tescoboss,will
be advising thenew owners, an dhehas a
formidablerecordinr etailing. If anyone
canmakeMorrisons asuccess,Leahy can.
Yetitish ardtos ee howitc an be magically
transformed. Morrisons ha slanguished
in fourth placeini ts sector fo rthe last
yearsand hasnomeaningfulbrand outside
of it sYorkshireheartlands. Thereallesson
of thebid is that,ifMorrisons is atargetfor
privateequit y, then so is just aboutevery
firm on theFTSE100.

Thewaveofbidswashing overBritain
No one thin ks thebuyoutswill endwith
thistakeover. TheUKiswitnessingwave
afterwaveofprivate-equit yfirms buying
outmajor British companies. In thefirst half
of thisyear, thebuyout firmsspent $45bn
in th eUK, with atotal of 38 ac quisitio ns,
rang ingfromJohnLaing to G4S. That is
double theamountspent in th efirst half
of 2020or indeed anyoft he last ten years.
Sainsbury’s?Tesco? Either of them couldbe
next. It is nothardtosee amedia company
beingbought, such as ITVorPearson.Or
indeed,one of thebanks such as Lloyds.
At thisrate, in an otherfew yearsthere may
be hardly anymajor companiesleftonthe
London market, andthe entire UKeconomy

Howtostopthe takeoverofB ritain

©S

hutt

erst

ock

Putting up barriers in the open market would make no sense. But there’sanother way...

TerryLeahy:ifanyonecan

makeagoofMorrisons,hecan

MatthewLynn

Citycolumnist