Management by bid
GUINNESS'S chairman, Ernest Saunders, is a man apt to mistake his critics for his enemies. That may come from listening to his admirers. They backed him, through the acrimonious sequence of bids for Dis- tillers, through the acrimony that followed when Guinness went back on its undertak- ings about the new company's chairman and board — arguing uncritically that he was the only man to run Distillers, and should therefore be left to run it in his own way. I thought this, at the time, an insufficient argument for a £2,500 million merger, and for its sequel. It would have been cheaper to buy Mr Saunders for his weight in gold, or to pay him millions a year with stock options to match. What (I asked) would become of the argument if Mr Saunders were to fall into one of his vats? There are, of course, other misfor- tunes which can disable a chairman. We need an alternative to management by takeover. Distillers would have made a test case for treatment. Its shareholders in the Scottish establishment, now so miffed at Mr Saunders's snubs, would have done better to have cleaned out the boardroom, even if that meant (as it would) firing their old golfing partners. Failing that, they should have been offered a management buy-in. This new technique is designed to release the hidden values in under- managed companies for the benefit of their shareholders, rather than a bidder's. Philip Ling, of Haden, invented it. He and two old BTR hands have proposed themselves to run Simon Engineering. Simon's share- holders are offered all the ordinary shares in a new, purpose-formed company, plus some cash. Mr Ling and his colleagues would have deferred shares, carrying neither vote nor dividend. If the team could improve Simon to the point where the ordinary shares had risen by 60 per cent, they would be able to convert their deferred shares into ordinary shares. I hope we shall see a management buy-in tested. Management by takeover is being tested now.
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