Patrick Hosking: Business Commentary
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The £391 million banana skin that tripped up Mitchells & Butlers continues to be the talk of the City, not to mention of the QEII Centre, where the pub company board was having to explain itself to cross shareholders yesterday. Bankers just can’t understand how M&B, and its advisers Citigroup and KPMG, could have got themselves into such a hole – the result of signing up to an open-ended hedge position before irrevocably clinching the parallel deal being hedged against.
Linking such arrangements is Chapter One in the Janet and John book of dealmaking. Deal-contingent hedging is standard practice: the hedge arrangement only goes ahead if the associated deal is actually struck.
And why didn’t M&B use options, where the cost was capped, rather than futures, where it was basically writing an open cheque? Options were apparently the method adopted by Robert Tchenguiz, M&B’s partner in the doomed property deal.
patrick.hosking@thetimes.co.uk
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