News that International Airlines Group will probably be in the FTSE 100 following the merger of British Airways and Iberia sounds uncontroversial. But imagine the opposite outcome – “FTSE 100 to ditch BA for being too Spanish” – and you can see how technical decisions about the nationality of the new group are fraught with political risk. During a close-fought election campaign, with sensitivity about the “loss” of Cadbury at its height, such a headline would have made Margaret Thatcher’s outrage at BA’s repainting of its Union flag tailfins look tame.
It’s not a surprise, then, that the FTSE has taken a provisional decision to include IAG in its UK indices. (FTSE is jointly owned by the Financial Times and the London Stock Exchange). The two companies will have to commit themselves in their as yet unpublished prospectus to respect pre-emption rights, observe the UK governance code and espouse other fine British traditions.
But to reach its conclusion, FTSE has flexed its rules and set a precedent that could open it up to fierce lobbying by dual nationals in future. IAG will be incorporated in Spain, its shares will be traded in London and on Spanish stock exchanges, and it is not clear until the joint company exists exactly where the most liquid market will be. To justify its decision, FTSE relies on its woolliest criterion for assessing Britishness – “market perception”. Yet this depends whether you were raised on Yorkshire pudding or paella. Iberia currently trades on Spain’s blue-chip index, the Ibex 35. If the Spaniards decide IAG merits a place in the Ibex based on Madrid’s perception that it is as Spanish as it is British, that would force FTSE to review the case.
When they signed their merger agreement a month ago, both British Airways and Iberia said they envisaged IAG joining the UK indices. But, as at least one British political party will have to acknowledge this morning, politics is an unpredictable business. This was and remains a highly political deal. Don’t start painting the IAG tailfins just yet.
FSA spanner in the works
When Roger Carr, ex-Cadbury chairman, worried about the ease with which bidders could overcome their targets, and Lord Mandelson, and the CBI’s Richard Lambert talked of the need to put a little “ grit into the takeover machine”, this is not what they had in mind. Yet the Financial Services Authority’s regulatory stay on Prudential’s bid for AIG’s Asian assets must have an impact beyond this deal.
Certainly, there are immediate procedural implications. Bank advisers will have to add days, if not weeks, to the timetable of other potential takeovers by UK financial companies.
As this column argued Thursday, the FSA’s strictness should not have come as a surprise to Prudential. But apart from the obvious and specific concern about how substantial the regulator’s objections are to this deal, the FSA delay is raising other broader questions in the City.
Does tighter FSA scrutiny cramp the ability of UK-regulated financial companies to expand in Asia? If capital cannot be repatriated from some jurisdictions, bidders will have to take longer to square local watchdogs or raise more money, or both. More significantly, does the Pru’s difficulty prosecuting this bid mean that “transformational” deals for UK-regulated financial companies are a thing of the past? And how much does that matter?
The fall and rise of Enron
With hindsight, the failure of Enron, the company, is quite easily explained: hubris, fraud, collapse. The failure of Enron, the play, is a different matter. Ask why its Broadway run will end prematurely on Sunday – despite the play’s huge success in London – and you get a variety of answers. Chauvinism (“Too British!”). Conservatism (“Too surreal!”). Bad reviews: the New York Times’ stinker was equivalent to rating agency downgrades that pushed Enron to the brink in 2001. Bad timing: theatregoers would have preferred Goldmania – the Musical or, as wealthy Wall Streeters themselves, they’d seen enough drama about ethics and regulation in their own boardroom.
Lucy Prebble, the playwright, should console herself. The fact Enron came out eight years after Enron went bust adds to its appeal. In theatre, if not in business, the more distant the events depicted, the more universally their lessons resonate. Off-balance-sheet may be off-Broadway for now. But on Wall Street and in the City, the same products, the same transactions and, let’s face it, the same scams have a habit of recurring: Ms Prebble should simply wait a few years before again pitching her exhilarating vision of greed gone bad to New York clients.
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