Even the most svelte competition regulators are condemned to act more slowly than the regulated. Thoroughness must take priority over speed if controversial decisions are not going to be reversed on appeal.
That sometimes puts watchdogs at a disadvantage when dealing with fast-developing technologies (cf Microsoft versus the world) or stock market manoeuvres. Take British Sky Broadcasting’s acquisition of a 17.9 per cent stake in ITV last November. BSkyB never admitted this was its intention, but the purchase prevented its cable-TV rival NTL (now Virgin Media) from bidding for ITV. The Competition Commission’s provisional ruling could end with BSkyB having to dispose of some or all of the ITV shares. But the damage is done. As Lex points out today, Virgin Media is unlikely now to bid for ITV and alternative buyers are few and far between.
It is possible to delay merger integration while antitrust probes are under way. When rules have been infringed, forced disposals are also common, although unscrambling a takeover if, say, competitors successfully challenge antitrust approval is near-impossible. In many jurisdictions, potential partners can also “pre-notify” and receive informal guidance about how to get the green light.
The BSkyB/ITV case was an oddity, however. A market purchase, rather than a full-fledged takeover, it was dealt with under special rules that also raised the question of whether media ownership was too concentrated in the UK. The Commission did not find enough evidence to support that view. That part of its provisional findings will be quietly welcomed by the Murdoch family, which controls BSkyB, among other media assets. But even if BSkyB is eventually forced to sell the shares at a loss, the fact that the acquisition of shares was carried out with lightning speed – and had an instant impact – makes it impossible to rewind this particular deal. Disinterested parties can only stand back and admire the Murdochian application of the Macbeth principle of corporate action: if it were done when ‘tis done, then ‘twere well it were done quickly.
Mid-market merger mania
Months of debt-fuelled mega-mergers have left everybody feeling blasé about deals that come at less than £1bn. But there’s increasing evidence that these will be the bread and butter of the coming months, at least in Europe. Only on Tuesday, Norbert Dentressangle, the French transport group, agreed a bid for Christian Salvesen that values the former whaling company’s equity at £254m, while Foseco has opened its books to Cookson, the engineering group, for a possible £491m bid.
Cookson, which knows the pain of over-borrowing to expand, has the luxury of being able to consider issuing shares to help pay for Foseco. And why not? While the debt markets were gummed up, trade buyers armed with cash or handsomely-valued paper were on the prowl, with the mid-market as a stalking ground. So while the value of UK transactions announced in August and September fell sharply compared with the previous year, the number held steady at about 450, according to Dealogic. That M&A bankers are talking their own book is no surprise. They will go on doing so until the moment they are laid off. But consider this: the Takeover Panel’s official list of companies in an “offer period” stands at almost the same level as this time last year, while regulators – who have no interest in talking up the pipeline – say the number of unannounced deals they are being asked to vet suggests a busy autumn ahead.
Wanted: Rock-steady crew
If Christopher Flowers is putting together a rescue package for Northern Rock, then it is fair to assume he will also be scouring the Square Mile and beyond for potential board members with the right credentials to make a fresh start. One template would be his purchase, with allies, of Japan’s bankrupt Long Term Credit Bank in 2000. When the board of LTCB (renamed Shinsei) was unveiled, Japanese and US grandees, including former Federal Reserve chairman Paul Volcker, took centre-stage. The equivalent for Northern Rock would be a new set of directors with impeccable City and regulatory experience, perhaps with a few Newcastle worthies thrown in.
The parallels are not exact: Northern Rock is solvent, as we are repeatedly told; the cultural gulf between Wall Street and Tyneside is narrower; Shinsei was breaking new ground in appointing western non-executives, whereas the Rock has a blue-chip board already. Yet Mr Flowers must know he needs directors with the muscle to match his financial firepower if he is to overcome political obstacles to a deal.