3 JULY 1959, Page 26

Rules for the Bid Game

By NICHOLAS DAVENPORT

THIS year the 'take-over bid' has become almost part of the London season. When Mr. Clore tried to bid his way into the enclave of the old Etonian brewers, the talk at Ascot naturally grew hot (Thank God, sir, the royal enclosure is safe I) Old heads at the dinner tables have been wagging, too, over the intro- duction of the bid technique into the staid and stuffy world of insurance (two groups were bidding for Scottish Union and National). And many were the jokes exchanged at the cocktail parties when a soft drinks firm (Schweppes) made a bid for a jam firm (Chivers) and another jam firm tried to jam it up. Hardly had these laughs died down when the audacious Mr. Hugh Fraser, the Scottish draper, not content with the 'High Street Ken' trade of Barkers and Derry and Toms, made an offer for Harrods behind the back of Sir William Burbidge, whose family has ruled that high-class store for generations. Happily, class distinction among drapers came to the rescue of Sir William. Debenhams made a counterbid and the tall commissionaires, chatting with my lady's chauffeur at the Harrods door, breathed again.

These bids have led to some sensational rises in the market prices of the shares—no one will quickly forget the jump in British Aluminium from under 40s. to over 80s.— but this is understandable, for the bid is only practicable when the market is undervaluing the assets of a company. When there are two potential buyers bidding against each other the market explodes still more violently. The law of supply and demand works as readily in the share market as in any other. It is absurd for a Member of Parliament to talk of 'economic gang warfare which has no regard to the interests of the nation'. Private enterprise would stagnate if the less enterprising were not being taken over continually by the more enterprising.

Nevertheless, all games should be played according to some rules and as the take-over tussle can become exceedingly rough, it would be wise for someone to draw up a set of rules to which the players must subscribe. Here are my suggestions. First, the shareholders must always be advised immediately a bid is received and must always be consulted before the management agrees to accept or reject the bid.

What caused such bad feeling in the case of the British Aluminium take-over was that the outgoing management did not consult the shareholders. Another case has just occurred. There were two rival bidders for Chivers—Schweppes and St. Martin Pre- serving. The chairman of St. Martin appar- ently told the chairman of Chivers eight months ago that his company was prepared to make a bid, but the directors of Chivers protested that they would be embarrassed by having to put a bid to their shareholders before the company's 1958 accounts were published. The chairman of St. Martin thereupon withheld his offer. But on June 6, as the Chivers accounts were about to be published, the Schweppes bid was announced with the statement that it carried the full support of the Chivers board. It seems to me extraordinary that they should agree without first informing their shareholders why they preferred to accept the Schweppes offer rather than the St. Martin offer.

The second rule I propoie is that a full disclosure of the purpose of the 'bid' should be given when the bid is made. Mr. Clore was able to take over Sears not because he was $2 better shoemaker or shopman, but because he was prepared to sell the freehold shops for cash and take them back on lease. This was smart business which redounded to the benefit of the Sears equity. Was Mr. Clore

thinking of doing the same with the public houses of Watney Mann? No disclosure was made. All we are now told is that : 'the chairmen of Sears Holdings and of Watneq, Mann have met. Friendly discussions have°, taken place and Sears Holdings have now C decided not to proceed with their proposed offer to the Watney Mann stockholders.' This ci! is an extraordinary anti-climax. Perhaps Mr. Clore has decided that he could not improve cl upon his price as the scope for the redevelop- s: ment of the Watney properties was limited, ti but if that is the case he should issue a state- ment and the Watney Mann directors should cap it with a full disclosure of their future intentions. If they have decided to giye Mr. Clore a profit on the shares he has already acquired; the shareholders should at least be told. Mr. Clore's nuisance value might be greater than they are prepared to pay.

The third rule, which I admit will be very difficult to implement, is that bids should only be made for a sound commercial—as opposed to a financial—purpose. If the bid is made simply to make a financial profit by selling the shares acquired in the market at the higher price created by the offer, then it is no longer constructive and legitimate private enterprise; it is merely a form of financial punting. How to enforce such a rule is a difficult matter. In a free-enterprise economy even a financial bandit, I suppose, is entitled to make a profit if he can get away with it. But I think a start could be made by the Council of the Stock Exchange insisting that unless the bidder comes first to the Chairman of the Stock Exchange and tells him of his bid in con- fidence and the commercial purpose of it, and promises to make a full disclosure to the shareholders, dealings should be suspended in the shares.

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Socialists may claim that the community has a right to share in the profits of take-over bids, but this is ridiculous while there is no capital gains tax on the statute book. It would be inequitable to single out one form of capital gain from another and expose it to a dis- criminating and vindictive tax. If the take-over leads to better and sounder use of the capital assets it is doing a good turn to the economy and should in no way be penalised by the Inland Revenue. Already Mr. Clore's bid for Watney Mann may have done some good, for Ind Coope have now made a bid for Taylor Walker and a sound general movement towards mergers in the over-populated brewing industry may have been set in motion. We must, therefore, welcome the notable increase in bid activity in this present London season; but let us draw up some rules for the next round.