I can't understand why they didn't announce in November that they had received an indicative bid at £18.50 but rejected it. Then they could have likely raised funds at £16/17 rather than £11.50. It just doesn't seem right to reject a bid and then raise money the next day at a huge discount to that bid. If the company's shares were worth more than £18.50, why were they happy to create more and sell them at £11.50?
When you substitute the word "shareholders" for the word "owners" the immorality becomes more stark.
Comparing this situation to owning a house rather than a company, and engaging an estate agent. An agent is obliged to disclose all offers. In fact The Consumer Protection from Unfair Trading Regulations 2008 requires estate agents must disclose any ‘information of which they are aware or should be aware of in relation to the property in a clear, intelligible and timely fashion’.
One distinction is that an estate agent is motivated to sell, because they get a percentage of any sale, whereas there is a risk that the directors are not motivated to sell, because their employment and options may be more secure if the company is not sold.
Which means that in order to manage the risk of appearing conflicted, every approach that is serious should be disclosed. At KWS, it was the fifth bid that was ultimately revealed by the press, and at XPP the bidder went public after the third bid had been rejected. A false market existed all that time.
That's very true - show me the incentive and I'll show you the outcome - to quote Munger.
Thinking about your prior article where you argued the relationship between the BoD and NEDs is too cosy. And if you are an "awkward" NED then you do not get appointed anywhere.
So what if the appointment of NEDs lay with shareholders and not with the executive? Perhaps not all, perhaps even just one NED - could that improve matters? That NED would be incentivised to act in the interest of shareholders because she or he has been appointed by shareholders. Currently it is only large shareholders (or the "goodwill" of the BoD who can effect change and force the appointment of people. I am thinking of Science Group and TP Group as a recent example - https://www.thisismoney.co.uk/money/markets/article-9923499/Bitter-bidding-battle-engineer-TP-Group-explodes-open.html
What if shareholder voting wasn't only to vote for the re-appointment of people but also some mechanism where an independent NED could be voted in? In a digital world such an innovation isn't beyond the pale, and for shares where there is a passivity well more fool them, but others where there's a ground swell of anger (and perhaps CHRY a few years ago could be described as such) then a high percentage of shareholders presumably would be motivated to vote and select a worthy candidate.
Agree with both comments. The role of an NED should be to challenge constructively. However, almost all NEDs come from 2 sources - they are either executives on other boards (Paula Vennells was a classic example, sitting on the boards of Dunelm and Morrisons, and the Chair of Imperial College Healthcare Trust, as well as being a lay priest) - or they are offshore professional NEDs appointed largely on the basis of location and diversity (if a company needs a director in a specific offshore jurisdiction that meets certain diversity criteria the pool of candidates will not be large).
In both cases, luck will play a bigger role than competence. We now know that Paula Vennells was utterly incompetent and while at the Post Office presided over a company that systematically covered up the truth. And yet she was appointed time and time again to senior oversight roles.
I recently had an interview for an investment trust board role, and I made the point that in my view, all trusts, which increasingly are held by self-directed individual investors rather than wealth managers, should have a board member that comes from that sector and is willing to engage with retail investors. The times have changed, and retail needs representation.
I don’t understand how it can’t be a requirement for shareholders to be informed of declined bids for a company.
As a XPP shareholder, I’d have certainly snapped up a few at the £11.50 placing had I known there were ongoing bids for the company at a significant premium.
I can't understand why they didn't announce in November that they had received an indicative bid at £18.50 but rejected it. Then they could have likely raised funds at £16/17 rather than £11.50. It just doesn't seem right to reject a bid and then raise money the next day at a huge discount to that bid. If the company's shares were worth more than £18.50, why were they happy to create more and sell them at £11.50?
Brilliant commentary.
When you substitute the word "shareholders" for the word "owners" the immorality becomes more stark.
Comparing this situation to owning a house rather than a company, and engaging an estate agent. An agent is obliged to disclose all offers. In fact The Consumer Protection from Unfair Trading Regulations 2008 requires estate agents must disclose any ‘information of which they are aware or should be aware of in relation to the property in a clear, intelligible and timely fashion’.
One distinction is that an estate agent is motivated to sell, because they get a percentage of any sale, whereas there is a risk that the directors are not motivated to sell, because their employment and options may be more secure if the company is not sold.
Which means that in order to manage the risk of appearing conflicted, every approach that is serious should be disclosed. At KWS, it was the fifth bid that was ultimately revealed by the press, and at XPP the bidder went public after the third bid had been rejected. A false market existed all that time.
Hi Donald
That's very true - show me the incentive and I'll show you the outcome - to quote Munger.
Thinking about your prior article where you argued the relationship between the BoD and NEDs is too cosy. And if you are an "awkward" NED then you do not get appointed anywhere.
So what if the appointment of NEDs lay with shareholders and not with the executive? Perhaps not all, perhaps even just one NED - could that improve matters? That NED would be incentivised to act in the interest of shareholders because she or he has been appointed by shareholders. Currently it is only large shareholders (or the "goodwill" of the BoD who can effect change and force the appointment of people. I am thinking of Science Group and TP Group as a recent example - https://www.thisismoney.co.uk/money/markets/article-9923499/Bitter-bidding-battle-engineer-TP-Group-explodes-open.html
What if shareholder voting wasn't only to vote for the re-appointment of people but also some mechanism where an independent NED could be voted in? In a digital world such an innovation isn't beyond the pale, and for shares where there is a passivity well more fool them, but others where there's a ground swell of anger (and perhaps CHRY a few years ago could be described as such) then a high percentage of shareholders presumably would be motivated to vote and select a worthy candidate.
NEDs in the UK are not effective, in many cases. It is time to look again at the Swedish model, where the Nominations Committee is made up of shareholders who nominate NEDs, and auditors. See https://bolagsstyrning.se/Userfiles/Koden/Dokument/Eng/SvenskKodBolagsstyrn_justerad_ENG_211220.pdf
Agree with both comments. The role of an NED should be to challenge constructively. However, almost all NEDs come from 2 sources - they are either executives on other boards (Paula Vennells was a classic example, sitting on the boards of Dunelm and Morrisons, and the Chair of Imperial College Healthcare Trust, as well as being a lay priest) - or they are offshore professional NEDs appointed largely on the basis of location and diversity (if a company needs a director in a specific offshore jurisdiction that meets certain diversity criteria the pool of candidates will not be large).
In both cases, luck will play a bigger role than competence. We now know that Paula Vennells was utterly incompetent and while at the Post Office presided over a company that systematically covered up the truth. And yet she was appointed time and time again to senior oversight roles.
I recently had an interview for an investment trust board role, and I made the point that in my view, all trusts, which increasingly are held by self-directed individual investors rather than wealth managers, should have a board member that comes from that sector and is willing to engage with retail investors. The times have changed, and retail needs representation.
I don’t understand how it can’t be a requirement for shareholders to be informed of declined bids for a company.
As a XPP shareholder, I’d have certainly snapped up a few at the £11.50 placing had I known there were ongoing bids for the company at a significant premium.
All in all, it all rather stinks!