For three years’ work, not full time, since there was Bhs and the distraction of a much discussed bid for another retailer also to keep him busy, this is not a bad return.
What those former shareholders must be wondering is whether some of it could not have been theirs. It is the question voiced by so many who have seen their companies taken over by private equity firms which then proceed to make a speedy fortune from the deal.
Mr Green has done what many of those firms do: leverage the business and get the original investment out as quickly as possible. Take the formula too far, and it can get dangerous. Some leveraged deals have so many levels of complicated debt piled on top of each other that they are in danger of toppling over. Restructuring specialists anticipate that 2006 could bring a flood of work from private equity deals that have turned nasty.
But Arcadia is getting its money on good terms through HBOS, which is happy to oblige, having multiplied its original investment in the company a hundredfold, and should have no trouble servicing the debt. Despite the relatively inhospitable trading environment, the company grew sales by 6.8 per cent over the year to August and is still notching up increases, with Top Shop one of the bestperforming bits of the business. Mr Green insists that he is not cashing out but is the owner of Arcadia for the long term. That was the clear message he imparted to his staff yesterday. Despite the size of his potential war chest, there is little likelihood of him launching another bid, at least not just yet. He has work to do at his other shop, Bhs, where trading has been disappointing.
But were he ever to be tempted to launch another acquisition, investors might decide that, rather than sell out completely, they would like to stay for the ride. That opportunity was not on offer when he bought Arcadia, in a deal that was recommended by the board, including the then chief executive, Stuart Rose. It was a possibility that was mooted when Mr Green made his overtures to Marks & Spencer last year, only to be resoundingly rebuffed by the board, including chief executive Stuart Rose.
Sir Gerry Robinson at least saw the wisdom of offering existing investors in a business the chance of enjoying the future that a new style of management might bring. The problem for him is that he does not have the same track record that Mr Green can now demonstrate.
The scale of the rewards he has pocketed makes him unique, but there are private equity operators who have also demonstrated that they can run businesses much more efficiently than the previous managers. Investors should now consider whether it makes sense to continue to sell out to these people. Would it not be sensible for more would-be bidders to come up with a structure that would enable investors to hold on to a stub equity or similar interest in the continuing business?
FSA integrity
THE Financial Services Authority needs to be run by knowledgeable specialists who could earn much more elsewhere. So it can only attract high-calibre people if they see it as a useful career move or if they have already made their pile and want to put something back, like the former investment banker Hector Sants.
Regular defections to City firms are to be expected and are probably preferable to creating a culture of regulation as a lifetime career. But there should be decent limits. Those will be passed when David Mayhew, who batted for the FSA in its pursuit of disgraced Shell boss Sir Philip Watts, moves straight over to join a team of lawyers that is, among other things, defending him. It undermines confidence in City integrity and makes FSA enforcement look silly. Its purdah rules should be at least as stringent as those for civil servants moving into business.
Supermarket needs turnaround
ON THE day that Morrisons admitted a first-half loss of almost £74 million, it advertised for four senior finance people. The integration of Safeway “requires a number of key finance leadership appointments”, it explained.
That the company is only now waking up to its needs sums up the chaotic way Sir Ken Morrison has dealt with his £3 billion acquisition. It was March last year when the Safeway deal was completed. More than 18 months later, the company is seeking a group chief accountant whose role it would be to “specify, elect and implement a state-of-the-art platform to deliver robust financial management across the business”.
The lack of robust financial management has been pitifully clear. Much now depends on new finance director, Richard Pennycook, aptly a member of the Society of Turnaround Professionals.
Morrison will take some turning. Although total like-for-like sales were up by 2.6 per cent, excluding fuel, at core Morrisons stores, they were down by 5.2 per cent.
The company unconvincingly blames “cannibalisation” as Safeway stores convert to the brand, but Tesco’s increasing market share is probably more responsible.
The hunt is on for a chief executive, but the job does not look appealing while Sir Ken determinedly hangs on as chairman. Neither are there likely to be too many takers to be head of Risk and Internal Audit at a company that had to call on outsiders to tell it whether the outcome for the year was more likely to be £50 million or £150 million.
Figure it out
STATISTICS struggle to keep up with life. City economists dive on the retail sales figures produced by the Office for National Statistics as evidence of whether consumers are loosening their grip on their purses. Yet these narrow numbers do not reflect the changing shape of consumer spending, as we report today. A modern consumer, opting to pay for broadband and buy on eBay, will not be noticed by the retail statisticians. Neither will the coffee shop junkie. We need a different set of numbers to tell us what is really happening.
