Is it time that Guy Hands accepted the inevitable and admitted his mistake with EMI? The 51-year old former Nomura financial guru paid a top-of-the-market price of £3.2bn for the music group in 2007 even though the business model for recorded music was clearly under pressure from illegal downloads over the internet.
EMI is something of a national icon as even the merest suggestion recently that it wanted to sell off the Abbey Road recording studios created a national outcry and got the rather bland building in St Johns Wood listed faster than you could say 'Hey Jude'. Sir Paul McCartney, who still lives close to the studios where many of the Beatles albums were recorded (including Abbey Road itself), is now reportedly threatening to take his personal back-catalogue of hits elsewhere.
Terra Firma is also struggling to find another £120m from investors before June to avoid Citigroup (who lent Hands most of the purchase price) gaining control by default, while Kohlberg Kravis Roberts is said to be planning a break-up bid along with Warner Music.
EMI clearly faced significant problems even before Hands bought it in those heady delays pre-credit crunch. But he has rather a poor track record on timing: in 2001, for example, he bought the Le Meridien international hotel chain from Compass for £1.9bn just as the global economy was turning down in the wake of the dotcom boom-and-bust and ahead of the 9/11 impact in travel. Two years later Le Meridien's debts were bought, ironically, by Lehman Brothers.
Hands, one of the City's most experienced dealmakers, also now claims he was misled by his adviser Citigroup in the final stages of the EMI bid and is now rather surprisingly suing Citi. Maybe his isolation in his Guernsey tax haven since April last year has clouded his judgment, although even this looks a mistake of timing following a recent court victory by HMRC (against Robert Gaines-Cooper) which has thrown the whole issue of tax exile status in doubt.
Perhaps it is time for Hands to emulate the spirit of 'Come Together' - recorded at Abbey Road in 1969 - and mend fences with Citigroup while also talking to KKR. - David Churchill
The report into the collapse of Lehman Brothers by Anton Valukas on behalf of the US bankruptcy courts has stunned Wall Street and the City, raising serious questions about the Lehman management and the roles of auditors Ernst & Young and lawyers Linklaters. The report concluded that there was evidence of a breach of fiduciary duty against senior executives and for professional malpractice against E&Y. The conclusions are likely to lead to a new round of litigation against the bank's advisers, including Linklaters which apparently sanctioned the controversial use of 'Repo 105' transactions when US lawyers declined to do so. But Barclays Bank escaped any censure from the report, which concluded there were only minimal possible transgressions relating to the transfer of assets from Lehman to the bank.
Editorial: The FT believes that anyone who did wrong should be held to account, although the real lesson is that institutions with bank-like characteristics should all be treated like banks and thus subject to proper oversight.
[ pp.1, 6, 7, 12 ]BAE Systems has lost out to General Dynamics for the £1bn contract to build the British Army's next generation of 'Scout' armoured vehicles. Defence Minister Quentin Davies is expected to name GD as preferred bidder this week with an initial deal for 750 vehicles.
[ p.1 ]Kohlberg Kravis Roberts is planning to take advantage of the market recovery in the US with a US$2.2bn flotation in New York, giving it a market capitalisation of US$7.5bn. The move comes almost three years after KKR's last attempt to go public. The New York-listed shares will be exchanged on a one-for-one basis with those of its KKR Guernsey vehicle, created last year by the private equity firm's merger with its Amsterdam-listed permanent capital fund.
[ p.1 ]...Andrew Hill thinks that light-touch regulation of financial services has served the sector badly and the consumer even worse.
...A possible MBO of Liberty will depend on the ability of its minority shareholders, including Brian Myerson's Principle Capital, to do a deal which ensures the right price is achieved.
...PricewaterhouseCoopers partner Ashley Unwind has hinted that management consultants might be willing in future to accept fees based on the 'realised value' of tangible and measurable results.
[ p.17 ]...Investor confidence in the ability or willingness or auditor's to take the correct view of a company's finances has been shaken by the Lehman Brothers report, again making the case for auditors to be employed by the securities regulator rather than the client.
...India and China are facing growing tensions as a result of their rapid economic growth and widening gap between rich and poor.
...Aegon's decision to delist from the Tokyo Stock Exchange reflects the lack of interest from foreign companies in maintaining a presence in the Japanese equity market, with just a dozen stocks likely to be left by the end of April.
...Fund managers who missed calling the bottom of the markets a year ago are now worrying they may miss the peak of the rally.
[ p.26 ]...John Authers says the belief of China's economic superstar status remains intact, with investors holding the view that any deflating of the Chinese bubble would be gradual rather than abrupt.
[ p.26 ]City lawyers Linklaters and accountants Ernst & Young are fighting to retain their reputations after a highly damaging report on the collapse of Lehman Brothers which strongly criticised their roles. The report by Anton Valukas of Jenner & Block, appointed by the judge handling the bankruptcy, is also a personal blow to the reputation of former CEO Dick Fuld who appeared in denial in 2008 about the investment bank's problems.
Analysis: Martin Waller reveals the sleight-of-hand accounting tricks used by Lehman to keep the short-term loans needed to survive off its books. Katherine Griffiths also believes that in spite of the devastating report, the former Lehman directors may still escape any criminal charges.
[ pp.8-9 ]...Ian King says companies thinking of trying again with their IPOs should have second thoughts as the moral of the Promethean World and SuperGroup floats is that the market is only interested in good growth stories rather than providing an exit for highly-leveraged private equity owners.
...The Gala Coral restructuring is a 'minor miracle' given the numbers of banks involved in its lending syndicates.
...The death of Sir Brian Pitman will be a loss for the many who benefited from his experience and judgment, including David Cameron who had appointed him to his Economic Recovery Committee.
...The latest US retail figures showing a better-than-expected rise in February are misleading and there is little to suggest the Federal Reserve will undertake fiscal tightening any time soon.
[ p.49 ]...Alistair Osborne thinks that Ernst & Young and Linklaters have some explaining do over the Lehman Brothers affair, although they will almost certainly get their chance to do so in court.
...A possible last-minute resolution to the damaging British Airways dispute could be a productivity bonus for staff, paid in BA shares.
...If the Treasury really wants to privatise the Port of Dover it should tell the management to stop abusing its monopoly and improve relationships with key customers.
[ p.30 ]...believes that Gordon Brown is, against all the odds, apparently persuading voters that Labour is better at managing the economy, a strategy that is compounded by growing confusion over the Conservative Party's economic agenda.
[ p.21 ]...Stephen Foley thinks the latest revelations about the Lehman Brothers collapse means it is time to consider criminal prosecutions, as happened with Enron.
...George Soros, who knows a thing or two about excessive speculation, is right to want a ban on trading in Credit Default Swaps by anyone who does not have an underlying bond exposure to insure.
[ p.53 ]...Alex Brummer describes as 'fiction' Labour's claims that growth and recovery will see the UK deal with its growing debt mountain and whichever party is in power after the election faces a crisis of 'biblical proportions'.
...The savage report into the Lehman Brothers collapse raises the question as to why it is taking the Financial Services Authority so long to produce its own findings into the collapse of UK banks.
[ p.101 ]...Peter Cunliffe says the biggest winners from the devastating report into the collapse of Lehman Brothers will be the lawyers.
...The successful SuperGroup and Promethean World IPOs show that investors still have an appetite for new stocks that offer value, growth and little debt.
...The late Sir Brian Pitman may be remembered primarily as a traditional banker of the old school, although he also showed he could be a corporate swashbuckler as the architect of the Lloyds Bank merger with TSB and the takeover of Scottish Widows.
[ p.78 ]Kohlberg Kravis Roberts and Warner Music are considering a break-up bid for struggling EMI, bought by Guy Hands' Terra Firma Capital Partners for £3.2bn in 2007. KKR, which is planning a stock market listing for itself in New York, is keen to acquire EMI's music publishing arm to add to its publishing joint venture with Bertelsmann, while Warner has long coveted EMI's recorded music operations. But a bid is unlikely until Hands has resolved his legal row with former adviser Citigroup over the price he paid for EMI.
[ p.3.1 ]J Sainsbury is to accelerate bonus payments to staff to enable its top earners, including CEO Justin King, to escape the 50% tax rate due to come into force on 6 April. Changing the timing of bonus payouts does not break any rules and Sainsbury says it is part of a trial scheme to reduce the waiting time for bonuses after the company's year-end.
[ p.3.1 ]Richemont, the Swiss luxury goods group, has made an approach to the Net-a-Porter online fashion business which values it at about £350m. Richemont already owns 29% of the company but is keen to take majority control, which could see founder Natalie Massenet sell at least part of her 18.2% stake.
[ p.3.1 ]Insurance entrepreneur Neil Utley has emerged as a bidder for KBC Peel Hunt, the broker being auctioned off by parent KBC, the Belgian bank. Utley, the ex-CEO of Cox Insurance, is a former client of the broker. Other bidders are thought to include RHJ International which last year bought Kleinwort Benson.
[ p.3.2 ]HSBC has been accused in the damning report into the Lehman Brothers collapse of demanding 'billions of pounds' of collateral to continue handling clearing and settlements just days before the investment bank failed. The claim comes in evidence to the report, compiled by Anton Valukas on behalf of the bankruptcy courts, from Carlo Pellerani, a former Lehman senior executive.
Focus: Dominic Rushe and Iain Dey say the explosive report has added further fuel to the claims that Lehman's failure was partially caused by a squeeze from other banks and so will inevitably lead to more litigation.
[ pp.3.2, 3.5 ]Upmarket estate agent Savills is expected to pay about £60m in bonuses to its 20,000 worldwide staff, including 3,000 in the UK. The bumper bonuses will come as Savills this week discloses profits of just £24m, up from a loss of £7.7m the previous year.
[ p.3.3 ]Sir James Dyson is to step down as chairman of Dyson, the company he founded 18 years ago, and will be replaced by former British Airways CEO Bob Ayling. Dyson says he wants to concentrate on product development but, in an interview with the Sunday Times, he says he would welcome the opportunity to have a role in a future Conservative government. Last week he published a report for the Tories on the UK's industrial base.
[ pp.3.3, 3.6 ]British Airways is expected to cancel many domestic and European flights when its cabin crew start their strike from Saturday in order to maintain as much of its long-haul network as possible.
Analysis: Dominic O'Connell reveals the tense negotiations to achieve a last-minute breakthrough in the dispute, which ultimately broke down.
[ pp.1.7, 3.7 ]...Dominic O'Connell thinks British Airways CEO Willie Walsh has played a 'canny game' of divide and rule with his belligerent cabin crew and the prospects for a transatlantic tie-up with American Airlines have convinced the markets he will emerge the winner.
...There is a clear parallel between the deceptions carried out by Lehman Brothers before its collapse, with the apparent connivance of Ernst & Young and Linklaters, and the 'pork pies' told by Greece to the EC about the true state of its finances.
...Sir Brian Pitman will be remembered by many for his strong sense of principle and an immense appetite for work.
[ p.3.4 ]...David Smith thinks the markets are right to regard the UK trade figures as more important now than they have done for many years, although it will take time to rebuild Britain's export markets away from the Continent and towards China and the rest of Asia.
...Alistair Darling should try and use what may be his final Budget to clear up some of the mess Labour has created for pensions, including the scrapping of higher-rate tax relief for top earners.
[ p.3.4 ]...Irwin Stelzer believes that President Obama's hopes for an export-led recovery in the jobs markets will depend on his willingness to tackle the Democrats in Congress over protectionism and cutting the increased costs and bureaucracy facing American businesses.
[ p.3.4 ]...John Arlidge reveals that all the heads of every big 'indigenous' UK carmaker is a German.
...Iain Dey says that in spite of the insider trading court victory over former Cazenove partner Malcolm Calvert, the Financial Services Authority is still failing to catch the major fraudsters.
...David Smith reports that business leaders remain concerned that Alistair Darling's Budget on 24 March will not address the key issue of spending cuts.
[ pp.3.1, 3.8, 3.9 ]Waitrose is considering plans to develop as a broader-based consumer brand with its foods available in other stores in the UK and overseas. CEO Mark Price is to give details later this month of Waitrose's initial move in this area with the sale of Waitrose food in 700 Boots outlets.
[ p.43 ]...Heather Stewart thinks that by pandering to 'rapacious shareholders', companies are pursuing the wrong goals by ignoring customers, staff and 'producing great products'.
...It is now clear that former Lehman Brothers CEO Dick Fuld could not have spun his web of self-delusion without having a team of advisers on his side, who unfortunately mainly appeared to be British firms.
...Fortis is rebranding as 'Ageas', yet another example of pointless corporate gobbledegook.
[ p.46 ]...reveals that the recent letter from 20 economists to the Sunday Times on spending cuts was actually meant to show the profession was united on the way ahead, rather than the 'savage cuts soon' message as interpreted by the Tories and some media outlets.
[ p.46 ]...Richard Wray believes the world of online technology has come a long way over the past decade, with the impact of the internet being felt by a wider spread of businesses than most thought likely in the boom-and-bust era.
...Nick Mathieson says several Conservative candidates in the forthcoming election face questions over their lobbying activities.
...Peter Preston thinks the Jon Venables affair has shown just how much the tabloid editors have the best feel for what grips their readers.
[ pp.44-45, 47, 48 ]Financial Services Authority CEO Hector Sants says in an interview with the Sunday Telegraph that market abuse is at an 'unacceptably high-level' and must be stamped out. He also reveals that the FSA is to expand by 10% with another 460 staff recruited to carry out investigations. But Angel Knight, CEO of the British Bankers' Association, warns that although the banks recognise the need for reform, the pendulum should not be pushed too far.
[ pp.B1, B6-7 ]Manchester United FC is believed to be the target for a second buyer, thought to be a single entity rather than a consortium such as the Red Knights group of City financiers. The potential bidder is believed to have lined up £1.2bn of finance which has persuaded the Glazer family to put a value on MUFC of at least £1.6bn.
[ p.B1 ]...Kamal Ahmed reveals that Marks and Spencer will next month start the search for a new chairman to replace Sir Stuart Rose, with an outsider most likely to be chosen, although Rose will be a hard act to follow.
...The Tories are finally expected to reveal their energy strategy before the end of the month, and it is likely to focus on nuclear, the North Sea and a new 'Green Investment Bank'.
[ p.B4 ]...Liam Halligan, chief economist at Prosperity Capital Management, thinks President Obama should tread carefully when putting pressure on China to adopt a more 'market-orientated exchange rate' as it risks sparking off an all-out trade war.
[ p.B4 ]...Tom Stevenson, an investment director at Fidelity International, thinks the technology story for investors is more interesting and wide-ranging today than it was a decade ago, especially as the risks are more sensibly priced this time round.
[ p.B4 ]Lloyds Banking Group is looking at plans to spin off a proportion of its giant property portfolio into a separate real estate investment trust. Senior executives believe the move to ring-fence some £50bn of the £75bn loans and assets inherited from the HBOS acquisition would be more tax-efficient. But no move is likely until after the election.
[ p.79 ]...Margareta Pagano is surprised that more businesses do not follow the John Lewis Partnership business model as it clearly works. But the next government could help by changing the tax regime for new businesses, which currently favours debt over equity, in order to encourage greater share ownership.
...It is time investors wised up before the event rather than after, as the damning report into the Lehman Brothers collapse makes all too clear.
[ p.85 ]...Hamish McRae believes that whoever forms the next government should face up to that fact that while core public services can be paid for out of taxation, extras will have to be separately funded by individuals who chose to use them.
...While it is important to support the role of science and engineering in the economy, it also vital that any changes do not harm the existing infrastructure.
[ p.84 ]...Lisa Buckingham thinks it would be a disaster if Ernst & Young were to go the same way as Arthur Andersen in the wake of the Lehman Brothers disclosures, as we cannot afford to lose any more major auditors.
...Carlyle Group's 120p a share approach for Shanks displays all the 'breathtaking arrogance and disregard' that has won private equity such widespread criticism.
[ p.80 ]Taking Stock: Jon Rees thinks that if the speculation about Rupert Murdoch taking BSkyB private is true, the strategy may be to use Sky as a vehicle to expand into overseas markets, especially eastern Europe.
Economics: Dan Atkinson says low growth in wages could destroy the assumption of steadily increasing spending power on which much of the economy is based.
Outlook: Greggs is set on Thursday to unveil a 3% increase in full-year profits to £46.5m.
[ p.86 ]...Tracey Boles thinks the damning Lehman Brothers report could be Ernst & Young's 'Enron moment'.
...The government is sending mixed messages on its defence dealings with the US, snubbing BAE Systems for General Dynamics over a new armoured vehicle contract while joining the French in condemning the Pentagon for favouring Boeing over EADS.
[ p.F2 ]Theatre fan revels in racecourse drama
Edward Gillespie, MD of Cheltenham Racecourse, is keen to talk up this week's Festival and the battle for the Gold Cup between favourites Kauto and Denman. But Gillespie, a dedicated theatre-goer, is also willing to raise the stakes over the Festival's timing, moving it from a Tuesday-to-Friday staging to a Wednesday-to-Saturday event, which is upsetting the traditionalists. But when he was MD of Epsom Racecourse in 1994 he also upset many by moving the Derby from a Wednesday to a Saturday, now seen as a masterstroke.
[ p.53 ]A very modest multi-billionaire
Carlos Slim, the Mexican billionaire who officially (according to Forbes) last week replaced Bill Gates as the world's richest man, made his fortune from building an old-fashioned conglomerate empire with businesses ranging from cement to restaurants to telecoms. But Slim's main fortune came from the Mexican telecom privatisations of the 1990s, which critics claim were undervalued, although his businesses now account for an estimated 7% of Mexico's annual GDP.
[ p.30 ]'People at AOL got used to being successful. No more.'
Tim Armstrong, Chairman and CEO of AOL, has his work cut out to transform the business back into a major internet force again. Armstrong acknowledges that the merger with Time Warner was a disaster and says it took its toll on staff over the past decade. But his new Project Everest aims to fundamentally restructure the business for the internet demands of 2010 and beyond.
[ p.B9 ]Phone baron reveals mobile comeback
John Caudwell, founder of the Phones4u mobile phone retailer which he sold four years ago for £1.46bn, is set to make a surprise return to the mobile industry. He has invested £1m into developing a mobile application that 'facilitates instantaneous transactions with a simple code' and thinks that if the project works, it could eventually be worth billions.
[ p.87 ]Why Lloyd's is so very different from Lloyds
Richard Ward, CEO of Lloyd's, hates being confused for the similar sounding bank (minus the apostrophe) although the decision to drop the 'of London' part of the insurance market's name in 1997 has not helped. But the wheel has turned full circle as the insurance market, which was plagued with problems in the 1980s and 1990s before getting back on track, is now compared favourably to the bank which has struggled after the HBOS acquisition. Ward, who joined in 2006, says Lloyd's is 'one of the real British success stories' for its role in global insurance and during his tenure he has modernised its operating and financial models to meet the needs of the 21st century.
[ p.83 ]Wolfgang Schäuble, German finance minister, has been using his time convalescing after an operation (he is a paraplegic after an assassination attempt 20 years ago) to launch a debate on the future of the eurozone, including the setting up of a European Monetary Fund. Schäuble at 67 is the oldest member of the German cabinet and a veteran politician, having also been the chief negotiator for German unification.
[ p.13 ]