November 27, 2012 8:38 pm

Active stance makes Qatar a powerful arbiter

It is hard to know how to refer to Qatar Holding, which steered the outcome of the Glenstrata merger vote and has just sold warrants equivalent to 3 per cent of Barclays. The $100bn sovereign wealth fund does not like being called an activist, preferring “active investor”. But that term has already been claimed by stockpicking asset managers. Generally these earnest types do not make big, market-moving calls under full public scrutiny.

Qatar does. Its intervention in the $70bn merger of Glencore and Xstrata squeezed a better price from the Swiss commodities trader and indirectly triggered the resignation of the miner’s chairman. Nor did the wealth fund strictly need to sell its warrants to reduce exposure to Barclays.


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The result, investment bankers say, is that bosses of investee companies will now seek signoffs from Qatar on planned takeovers or restructurings.

This elevated but unenviable band would include Glenstrata chief Ivan Glasenberg, who is doubtless already mulling his next deal. Antony Jenkins of Barclays may also think it wise to make a pilgrimage to Doha for an audience. The wealth fund retains a 6.7 per cent stake in the bank. Better for chief executive Ahmad al-Sayed to express his views on a reshaping of Barclay’s investment bank privately than via a painfully timed press release.

Qatar Holding is therefore losing its appeal to company heads as a source of capital less critical than picky western investors. Established only in 2006 to invest gas revenues, it is growing up fast.

People close to the situation (so knowledgeable, yet so self-effacing, bless them) say the public tussle with Glencore was a “one-off”. We will see. Power is addictive. And power exercised publicly is most addictive of all.

Spreadsheets at dawn

Mike Lynch, former chief executive of Autonomy, has slapped Hewlett-Packard boss Meg Whitman across the chops with an open letter, where previously a glove would have served. Just as well. Duelling with pistols is illegal. Duelling with numbers is not.

Last week Ms Whitman impugned the honour of Mr Lynch with a writedown in the value of the software business he founded and ran. HP bought Autonomy for an inflated $11bn in 2011. A $5bn charge related to alleged accounting irregularities at the group, including misleading and premature recognition of sales.

The satisfaction demanded by Mr Lynch, given the anachronism of flintlocks at 20 paces, is for HP to quantify the amount by which purported legerdemain padded sales, cash flow and profits. The implication of his letter is that the accident-prone hardware group destroyed value at Autonomy and is now ducking the blame.

Good for Mr Lynch. Ex-bosses are left to twist in the wind when allegations of accounting irregularities surface at companies they used to run. HP should be able to give more detail without prejudicing regulatory probes.

The disputed uplift in revenues does not have to be large to be significant. The wheezes alleged by HP would have bolstered the sales growth rate, an important valuation benchmark in the delusional world of IT M&A. That might have emboldened HP to pay a whacking price earnings multiple for Autonomy – 34 times as recorded by Paul Morland of Peel Hunt. .

Don’t faucet

Incongruously, a row related to the finite nature of water has broken out at a time of widespread flooding. Some water companies are holding out against plans to make them compete more. They argue this could damage supplies of H 2 O and investment, both of which have a habit of drying up when most needed.

There is a trade-off in the relationship between the yield-seeking investors who favour the sector and the government. Tight regulation ensures that returns from companies with local monopolies are predictable. But regulator Ofwat wants to award licences that would increase uncertainty. Up to 40 per cent of revenues could be opened up to competition.

Utilities with low-cost billing might pitch to retail water in several regions, buying wholesale from locals. Land owners might enter the extraction business.

United Utilities has publicly rejected the new licences. That has allowed Severn Trent to cast itself as a conciliator in a half-year results statement, suggesting, for example, that only 20 per cent of revenues should be liberalised initially.

Competition makes us stronger, if it does not kill us. So liberalisation of water services is desirable. But change should be a dribble not a flood, as Severn Trent advocates. Otherwise the capital needed by the sector as it adapts to climate change will carry a deservedly steep premium for the fickleness of regulators and politicians.


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