ALUMINIUM KETTLE OF FISH
By NICHOLAS. DAVENPORT WHILE the Government is work- ing on plans `to give the small investor a much better chance than he had ever had 'before to invest in industry'—which Mr. Butler has described as 'a splen- did way of bringing our great industrial concerns closer to the people—the directors of British Aluminium have been letting everyone know how easy it is for
company executives to ignore their shareholders altogether. Before I comment O n the latest moves in this battle for a company's control let me make it clear that no one has sug- gested that the directors of British Aluminium have been acting otherwise than in accord with what they conceive to be the best interests of their company. When Lord Portal, the chairman, declared that the board had 'never done a better Piece of business' than when it made their secret agreement with Alcoa (the Aluminium Company of America), allowing it a third of the equity on easy terms, I have no doubt whatever that he meant it and believed it. But I have equally no doubt that if I were a shareholder I would regard it as against my best interests—that is, as an Investor looking for the maximum capital and dividend accumulation.
The situation in which British Aluminium found itself this year is common enough with companies engaged in capital-thirsty industries. It has the largest aluminium business in the country, accounting for about one-third of the ,national turnover; what is. more, it is the only producer Of virgin aluminium we have. In relation to its Manufacturing capacity it is short of virgin aluminium production and is seeking to increase It. But bauxite developments need huge amounts Of capital. For its Canadian bauxite venture it went into partnership with Quebec North Shore Paper on a 60/40 basis and for its North-west Australian Project with our Consolidated Zinc Corporation on a 50/50 basis. In looking for a new partner this year who could put up more money for further expansion, it picked out Alcoa, the largest aluminium company in the world, because that American giant had no outlet in this country and Was apparently content to secure it by taking a minority interest in BA without disturbing the existing management. The BA directors could not aPproach the Canadian giant (Alcan) because that company already had a British subsidiary in Northern Aluminium of Banbury; and they wanted to steer clear of the American Reynolds Metals, the third largest in the industry, because that company had a tie-up with Tube Investments.
While secret talks between the BA directors and Alcoa were going on—this is how the fun started—the directors of Tube Investments were quietly buying British Aluminium shares in the market as a preliminary to a take-over bid. This procedure is now conve,ntional action in the business world and on the whole it makes for greater efficiency and flexibility in the capitalist system. If an enterprising company thinks that the assets of another company are not being fully exploited or are undervalued in the market or can be put to greater profit under new management It is fully entitled to buy the shares in the open market in order to secure control or to make a bid to shareholders at a price above the market.
At what point the BA directors and the TI directors first became aware of the fun going on behind their respective scenes I do not know, but on November 3 the chairman of TI at last cor- nered the chairman of BA in his office and fol- lowed it up with a letter, dated November 5, definitely stating that they wanted a merger and were prepared to make an attractive offer to BA shareholders. Without saying a word to their shareholders the BA directors thereupon signed an agreement with Alcoa in the week beginning November 10 allowing Alcoa to subscribe for £41 million of their unissued capital over a period of years thus giving the American company one- third of the enlarged equity, which is regarded as sufficient for effective control. It emerged later that the price to be paid by Alcoa was 60s. a share and that the price offered by TI to BA share- holders was in effect 78s. a share (one share of TI then quoted at 78s. plus 78s. in cash for every two BA shares). Naturally the shareholders of BA are feeling pretty indignant.
Company directors act as trustees for their shareholders and it was surely the duty of the BA board to inform theirs immediately of the TI bid. It is no excuse to say that the TI letter of Novem- ber 5 was of `vague intention,' for it must have been obvious at the tense meeting of November 3 that the TI chairman meant business. It is clear that the BA directors signed up quickly with Alcoa to forestall being controlled by TI. As for the price of 60s. which Alcoa was allowed, Lord
Portal explained that when agreement was reached the market price was just under 59s. (thanks to a rise of 10s. or more on TI buying). As the com- pany had made a two-for-seven rights issue at 58s. in August, 1957, it could not have raised any further capital in November, 1958, at anything like 60s. The price of the shares had been as low as 36s. 9d. at the beginning of the year. All this, I suggest, indicates that the market in BA shares had been showing lack of confidence in the com- pany for some time—until the secret buyer appeared.
Certainly the BA directors were justified in trying to raise the fresh money needed to finance their capital development over the next three to four years without having recourse to their share- holders. but they were clearly not justified in re- fusing to allow their shareholders to vote on an alternative plan to their own, especially when this meant giving the shareholders a wonderful profit on their shares.
The affair has now been passed to Mr. 'Solo- mon' Amory for judgment and I hope that he will decide in favour of Tube Investments, which has undertaken to hold 51 per cent, of the new operat- ing company and preserve nominal control for Great Britain. Not that I am a member of the League of Beaverbrook Loyalists which, I see, is objecting strongly to American participation in British Aluminium, as it did to American interven- tion in Trinidad oil, Canadian oil, Persian oil, Rhodesian copper and Jamaican bauxite. If BA needs more capital, asks The Sunday Express, why not raise it in the British market? Really, this aluminium affair is full of laughs.
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