The Competition and Markets Authority rarely fails to surprise. The watchdog worked itself into a fine fury a couple of years ago over the obscure merger between Poundland and 99p Stores. It eventually reached the commonsense conclusion that the deal would not deliver a fatal blow to competition on the high street, but it needed two attempts to get there.
Now, presented with the more substantial £3.7bn takeover of Booker by Tesco, the CMA has declared that it can’t see why anybody would make a fuss. Small convenience stores should not worry about Tesco getting even bigger. The catering trade will be unaffected, apparently. The deal can proceed without remedies.
The CMA “seemingly lives in a different universe,” declared Clive Black, analyst at Shore Capital. One can only agree. Tesco, with Londis and Budgens under its umbrella, is set to have an extraordinary hold over the convenience-store market. It is baffling the CMA did not insist – at the very least – on Tesco selling its One Stop chain.
Still, Tesco chief executive Dave Lewis predicted exactly this outcome, so we should give him credit for being able to read the minds of the CMA’s policy wonks. Now – for him – comes the harder part of convincing his own shareholders that swallowing Booker is sensible.
He’s already lost one non-executive director over the deal: Compass Group’s Richard Cousins quit in protest, arguing that making Tesco more complicated was the wrong way to go. And the resistance of Schroders and Artisan, two shareholders speaking for 9% of Tesco’s stock, remains. “It doesn’t matter how good a strategy is if you pay the wrong price,” said Schroders on Tuesday.
Given that Tesco is offering 23 times earnings on some measures, the revolting shareholders’ argument is strong. Nobody else has yet rallied to Schroders/Artisan flag, but maybe they were waiting for the CMA to opine. Either way, Lewis should not take a thumbs-up for granted.
City analysts suspect he’s been understating the potential cost-savings and that he’s really looking for twice the declared £200m. If that’s correct, it’s time to speak up. Satisfying the CMA is one thing. What Lewis really needs is the traditional thumping majority from the owners. Getting the deal across the line with a majority of, say, only 75% would be a moral defeat.
Would Davis bring too much drama to Rio Tinto?
Nobody appoints Sir Mick Davis to their board if they want a quiet life. Mick the Miner built Xstrata from a small collection of Glencore’s cast-off mines into a global operator that was eventually worth $50bn. Those were deal-making days for the industry and Davis was in the vanguard. “You’ve got to be a player. What’s the point of being in business if you can’t be a player?” he said in a speech in 2009.
There were serious mistakes along the way, such as a woefully-timed bid for Lonmin, and Xstrata’s final year was dominated by the Glencore soap opera. A merger of equals became a full-blooded takeover, with Davis’ spiky relationship with his counterpart, Ivan Glasenberg, under the spotlight. But Xstrata’s long-term backers always knew what they getting – drama, action and big personal rewards for Davis and his crew.
Many of those qualities should make him a terrible candidate to be the next chairman of Rio Tinto. Mega pay packets go down badly these days. And Rio (when it isn’t being charged with fraud by US regulators, a matter relating to the fallout from a 2011 deal) has spent the last five years trying to turn itself into a model of corporate dullness. The solid generation of cash is supposed to the goal.
In Davis’ favour, it might be said that having a mining industry veteran as chairman of a big mining company is hardly an outlandish idea. And, if Rio’s chief executive Jean-Sébastien Jacques is really as headstrong as he’s painted, it might help to have Davis on hand as the voice of experience. Davis is also said to be have mellowed over the years (just as well, given the state of the Conservative party, where he is chief executive).
In the end, one suspects Rio’s board will play safe and opt for a current non-executive director. That would be very boring, but probably wise: if Rio’s investors crave thrills, they can always buy shares in Glencore.
Vodafone chief may not be ready for a new contract
It’s taken so long that we almost stopped watching, but the reinvigoration of Vodafone is finally happening. The telecoms giant upgraded its profit forecast for the first time anybody could remember. The old guidance said operating profits would improve by 4%-8% but the company now reckons it will do 10%. The difference may not sound much, but this is a very large business – top-line earnings should be around €14.8bn. Free cash flow is running at a shade over €5bn a year, so a dividend costing €4bn now looks very solid, which wasn’t always the case.
Time for chief executive Vittorio Colao to declare victory and bow out after nine years in charge? Actually, in his shoes you’d probably keep going. Gentler breezes from the eurozone, Vodafone’s biggest market, have arrived and you might as well enjoy them. And we’d all be glad if Vodafone makes good on its promise to provide stiffer competition to BT in fast-fibre broadband in the UK.