Asset stripper Melrose looks to have learnt nothing from the duffing up it received during the battle for GKN. The company’s big idea for governance reform is to promote Justin Dowley, who signed off the outsized pay awards for Chris Miller and the other top executives as chairman of the pay committee.
Doubtless he is a fine fellow with huge experience in high finance. But the idea that a company insider who has been on the board since 2011 is the chairman to keep excess in check or sack the chief executive if things go wrong is farcical.
What Melrose desperately needs, as one of the UK’s top aerospace and high-tech motor components firms, is a heavyweight engineering chairman in the mould of Rick Haythornwaite of Centrica or John Neill of Unipart.
Protest: What Melrose desperately needs, as one of the UK’s top aerospace and high-tech motor components firms, is a heavyweight engineering chairman
The decision to give the job to the person who signed off on £170m of potential pay-outs to the Melrose big four of Miller, David Roper, Simon Peckham and Geoffrey Martin is not credible.
In spite of enjoying the support of some of British big-battallion investors, such as Aviva, governance does not look a priority at the group’s Mayfair headquarters.
There is a hectoring, how-great-we-are tone to the interim results. But the costs of the GKN takeover and restructuring actually resulted in a pre-tax loss of £256m during the period of Melrose ownership of GKN. One Melrose slide boasts a saving of 85 per cent on central costs, reduced by 57m.
Some £20m of those have been reassigned to operating units and a further £9m to Melrose HQ. None of this adds to the well-being of Britain’s engineering heartlands in the Midlands.
The main asset Melrose proposes to sell is the Powder Metallurgy offshoot. To be fair, this also was to be sacrificed by GKN as a response to Melrose’s agitation. It is described as having ‘technology leadership and superior operations with a pipeline of innovative products’ and superior margins. If it is such a wonderful enterprise then why sell, risk intellectual property falling into the wrong hands, including some of its defence capability? It is a blatant example of short-term thinking, easy gains and hang the industrial consequences.
Melrose also trumpets that it found no ‘black holes’ at GKN as if this is a major surprise. Indeed, aerospace and automotive operations are doing a roaring trade just as GKN pledged. It is ever more imperative that the Government and takeover panel monitor disposals closely to ensure commitments made in the final days of the bid battle are not broken.
Cap in hand
At first blush the Tory price cap on the Big Six energy companies looks a good thing. It puts money in the pockets of 11m customers of the utilities stuck on a standard variable tariff.
But such interference in free markets rarely works. In the period it has taken to implement the price cap, wholesale prices moved up and the Big Six have lost no time in passing on increases.
They are giving back what they already have taken. If Ofgem, the regulator, had been more determined it could have ordered the Big Six to automatically switch more docile customers onto the cheapest tariffs. Estimates suggest that the tariff cap will cost Centrica up to £250m, money which could have been invested in greener technology. Moreover, the rise of challengers to the Big Six together with price comparison sites and easy switching should help keep the major players honest.
The real concern for stock markets is that in seeking to out-jump Labour on energy prices Mrs May’s government has set an unfortunate precedent.
A Labour administration might, for instance, seek to do the same for insurance and banks. That might look like a good idea but could produce unwanted outcomes. Wonga was a ghastly company. But driving it into the knacker’s yard was not the objective when charges were capped.
Could the glory run for Ocado shares come to a shuddering halt? Parent of the online grocer’s French partner Casino looks to be in deep trouble.
The borrowings of 51.1 per cent owner Jean-Charles Naouri of Rallye have risen to £3.2 billion and the price of credit insurance has soared, signalling an 80 per cent possibility of failure. Bonds with a 3.4 per cent coupon which mature in 2022 are yielding 26 per cent.
Perhaps Ocado boss Tim Steiner should come to the rescue.