News
What price the rules of governance?
Oh dear, oh dear. Through a glass darkly, I've discerned a glimmer of light at the end of the financial tunnel. Sadly, it's my duty this week to switch it off.
This is a story about downtown, Metropolitan T.O. (as the Canadians refer to their financial capital), murky old Moscow with its 'orrible oligarchs, and the deal-starved global investment community in general. Oh yes, and the City of London, which is still a pretty good place to invest, despite the UK government's best efforts to drive international investors away (if the sub-cretinous fools in Whitehall tinker once more with non-domiciled tax status for individuals there will be a stampede to tax-friendly environments, with Dubai a certain beneficiary).
The bottom line is that in these difficult times, certainty is at a mighty premium. The financial markets are in the throes of a giant, collective nervous breakdown. Just about anything not flagged up with great clarity and presented with perlucid transparency is going to have the screens flashing red.
Let's start in London. While the UK government is panicky and not to be trusted to tie its own shoelaces right now, the financial infrastructure remains sound. Consider the following comment by incoming Deputy Director General of the Takeover Panel (TOP) Chris Jillings in a recent interview with me: "I wouldn't want to overstate the importance of the TOP, but it's part and parcel of how business gets done here. It's part of the package along with the liquidity and the brain power we have in London. Compare that with some other jurisdictions. There, you may be facing a degree of uncertainty about the rules and political risk in how control of companies can change hands. What's important here is that we have an efficient, fair way of dealing... And other things being equal, that makes London a more attractive place for shareholders to invest."
Believe me, I'm no sentimentalist who tries to re-invent the British empire in his sadder moments. But Jillings has a vital point. Jurisdictions – South Africa comes to mind here – that don't have nailed-down, UK-style certainty in corporate governance and regulation are going to suffer in today's markets. If a purchaser isn't sure about how to conduct a bid, or what will happen if ownership changes (especially if the purchaser is based outside the target company's country) then that purchaser is going to put up less cash. In effect, uncertainty in corporate governance and regulation means lower corporate valuations, if a deal can be pushed through at all.
All of which makes me wonder what on earth is going on in the acrimonious battle between two Russian oligarchs for control of Norilsk Nickel. It is a battle which has spilled over onto Canadian territory in a way that has international commentators questioning how both jurisdictions govern their business worlds. As such, it well illustrates the increasingly joined-up nature of global capitalism.
My interest in things Canadian (a country which I visit frequently and generally admire) was renewed by a forthcoming appointment with Sandra Pupatello, the minister of economic development and trade for the province of Ontario, the powerhouse province of the Canadian economy. I was aware that there was, as we Brits say, a bit of a ruck involving UC Rusal, one of the world's biggest aluminum producers, which wants to merge with Norlisk Nickel. But that was a purely Russian matter. Or so I thought, until a trawl through the stories on Canadian business elicited the somewhat startling fact that the controversy had spread to Canada.
The National Post splashed an article claiming that the leader of a high-flying Toronto-listed company was "at the centre of a huge corporate controversy in Russia that could dictate the future of two of the world's largest resource companies… The battle pits two of Russia's most powerful and famous oligarchs head-to-head - Rusal's Oleg Deripaska and Norilsk's Vladimir Potanin."
If Deripaska gets what he wants, the combined company would be a vast, widely diversified metals company. On the global stage, it would rival massive names such as BHP Billiton and Rio Tinto. Under Deripaska's guidance, Rusal bought 25pc of Norilsk's shares. Potanin, who controls nearly 30 per cent, is opposed to the deal. At the moment, Potanin appears to have a blocking position, partly because of two Norilsk board directors – one of whom leads a company quoted on the Tornoto stock exchange – whom Potanin alleges are independent. Deripaska argues angrily (and persuasively, in my view) that these directors are not so much independent as Potanin's nominees.
So this might seem complicated, but really, it's not. There's that great rarity in the offing – a massive deal, credit crunch notwithstanding. But for the deal to go through, investors are going to require proper, internationally recognised standards of corporate governance, disclosure and transparency to apply.
The chief executive of Deripaska's company, Rusal, has pulled no punches in describing a recent board meeting "a farce…The decisions made at this meeting demonstrate that the board is controlled by Interros [Potanin's holding company], and does not represent the interests of all shareholders."
The Canada-based German national at the helm of the Canadian company, Timminco, took the share price of that company from a few cents to Canadian $30 in under twelve months. But Timminco managed to drop in value by 48 per cent in a single week in April, following questioning articles in Barrons magazine.
Now, I've no fixed views on these highly volatile share price moves, the future of the Timminco business, or the future of the Norlisk merger (there may be more directors appointed, or even a three-way deal involving one of Potanin's companies, apparently). Truly, I'm open to persuasion on these issues. But what does concern me is the interest of the international investor. How is one supposed to formulate a view? The rules of governance in Russia – and I think by implication in Canada, given the see-sawing of the Timminco share price – mean that those international standards of transparency and quality regulation hardly seem to apply in either country.
So I was excited by the prospect of my meeting with the minister for economic development and trade, having flagged up my interest to her PR people beforehand. Unfortunately, she cancelled. Apparently, we will get together for a proper chat in Toronto some time soon. I'll report back.
This is a story about downtown, Metropolitan T.O. (as the Canadians refer to their financial capital), murky old Moscow with its 'orrible oligarchs, and the deal-starved global investment community in general. Oh yes, and the City of London, which is still a pretty good place to invest, despite the UK government's best efforts to drive international investors away (if the sub-cretinous fools in Whitehall tinker once more with non-domiciled tax status for individuals there will be a stampede to tax-friendly environments, with Dubai a certain beneficiary).
The bottom line is that in these difficult times, certainty is at a mighty premium. The financial markets are in the throes of a giant, collective nervous breakdown. Just about anything not flagged up with great clarity and presented with perlucid transparency is going to have the screens flashing red.
Let's start in London. While the UK government is panicky and not to be trusted to tie its own shoelaces right now, the financial infrastructure remains sound. Consider the following comment by incoming Deputy Director General of the Takeover Panel (TOP) Chris Jillings in a recent interview with me: "I wouldn't want to overstate the importance of the TOP, but it's part and parcel of how business gets done here. It's part of the package along with the liquidity and the brain power we have in London. Compare that with some other jurisdictions. There, you may be facing a degree of uncertainty about the rules and political risk in how control of companies can change hands. What's important here is that we have an efficient, fair way of dealing... And other things being equal, that makes London a more attractive place for shareholders to invest."
Believe me, I'm no sentimentalist who tries to re-invent the British empire in his sadder moments. But Jillings has a vital point. Jurisdictions – South Africa comes to mind here – that don't have nailed-down, UK-style certainty in corporate governance and regulation are going to suffer in today's markets. If a purchaser isn't sure about how to conduct a bid, or what will happen if ownership changes (especially if the purchaser is based outside the target company's country) then that purchaser is going to put up less cash. In effect, uncertainty in corporate governance and regulation means lower corporate valuations, if a deal can be pushed through at all.
All of which makes me wonder what on earth is going on in the acrimonious battle between two Russian oligarchs for control of Norilsk Nickel. It is a battle which has spilled over onto Canadian territory in a way that has international commentators questioning how both jurisdictions govern their business worlds. As such, it well illustrates the increasingly joined-up nature of global capitalism.
My interest in things Canadian (a country which I visit frequently and generally admire) was renewed by a forthcoming appointment with Sandra Pupatello, the minister of economic development and trade for the province of Ontario, the powerhouse province of the Canadian economy. I was aware that there was, as we Brits say, a bit of a ruck involving UC Rusal, one of the world's biggest aluminum producers, which wants to merge with Norlisk Nickel. But that was a purely Russian matter. Or so I thought, until a trawl through the stories on Canadian business elicited the somewhat startling fact that the controversy had spread to Canada.
The National Post splashed an article claiming that the leader of a high-flying Toronto-listed company was "at the centre of a huge corporate controversy in Russia that could dictate the future of two of the world's largest resource companies… The battle pits two of Russia's most powerful and famous oligarchs head-to-head - Rusal's Oleg Deripaska and Norilsk's Vladimir Potanin."
If Deripaska gets what he wants, the combined company would be a vast, widely diversified metals company. On the global stage, it would rival massive names such as BHP Billiton and Rio Tinto. Under Deripaska's guidance, Rusal bought 25pc of Norilsk's shares. Potanin, who controls nearly 30 per cent, is opposed to the deal. At the moment, Potanin appears to have a blocking position, partly because of two Norilsk board directors – one of whom leads a company quoted on the Tornoto stock exchange – whom Potanin alleges are independent. Deripaska argues angrily (and persuasively, in my view) that these directors are not so much independent as Potanin's nominees.
So this might seem complicated, but really, it's not. There's that great rarity in the offing – a massive deal, credit crunch notwithstanding. But for the deal to go through, investors are going to require proper, internationally recognised standards of corporate governance, disclosure and transparency to apply.
The chief executive of Deripaska's company, Rusal, has pulled no punches in describing a recent board meeting "a farce…The decisions made at this meeting demonstrate that the board is controlled by Interros [Potanin's holding company], and does not represent the interests of all shareholders."
The Canada-based German national at the helm of the Canadian company, Timminco, took the share price of that company from a few cents to Canadian $30 in under twelve months. But Timminco managed to drop in value by 48 per cent in a single week in April, following questioning articles in Barrons magazine.
Now, I've no fixed views on these highly volatile share price moves, the future of the Timminco business, or the future of the Norlisk merger (there may be more directors appointed, or even a three-way deal involving one of Potanin's companies, apparently). Truly, I'm open to persuasion on these issues. But what does concern me is the interest of the international investor. How is one supposed to formulate a view? The rules of governance in Russia – and I think by implication in Canada, given the see-sawing of the Timminco share price – mean that those international standards of transparency and quality regulation hardly seem to apply in either country.
So I was excited by the prospect of my meeting with the minister for economic development and trade, having flagged up my interest to her PR people beforehand. Unfortunately, she cancelled. Apparently, we will get together for a proper chat in Toronto some time soon. I'll report back.