Be first with the Brexit business news — and save money — with our patented Daily Mail/Express/Telegraph headline generator! Simply take one word from each row and arrange on a piece of paper:
1 De La Rue, Government, Rees-Mogg;
2 Betrayed In, Shamed In, Defiant In;
3 £400m, £120m, £2.3s.6d;
4 UK Passport, Brexit Passport, True Blue British Passport;
5 Disgrace, Scandal, Outrage.
It is easy to ridicule the media furore around the UK government’s decision to award a contract for new blue passports to a French company, and not London-listed De La Rue. Easy, but — in this case — unfair.
Because, if anything, those newspapers have been entirely principled in their arguments, while the government has been hypocritical and the company injudicious.
Wednesday’s news that De La Rue has dropped its appeal against the passport award will doubtless inspire more hyperbole, and verbosity from Brexit MP Jacob Rees-Mogg. However, in repeating it, editors will simply be taking the same position on protecting British industry that they did during Melrose’s takeover of GKN.
HM Government has shown no such consistency. Its ministers were quick to express fears over GKN’s UK factories falling into the hands of cost-cutter Melrose. But they are happy to take work from De La Rue’s UK factories and give it to a group cutting costs by £120m on a £400m contract.
Business secretary Greg Clark intervened in the GKN deal to secure undertakings over apprenticeships and research. But neither he nor his Home Office colleagues are perturbed about jobs and skills at De La Rue’s passport plant being lost to France.
Mr Clark also demanded that Melrose address concerns over national security if it took on GKN’s aerospace work. But, despite no object being more connected with nationhood and security than a passport, no such issue arises with contract winner Gemalto. And, given De La Rue’s own international work, nor should it.
However, De La Rue’s own inconsistencies — and misjudgments — should be of concern to investors.
It claimed 16 days ago that it was initiating a legal challenge against the passport decision. Now it admits this was an uninformed move — boss Martin Sutherland says that, after actually taking advice, he found there was little chance of winning an appeal.
Mr Sutherland had earlier tried to justify bidding higher than Gemalto on “quality” grounds. But, by going £120m higher, he led one newspaper to speculate over De La Rue’s finances.
Then, on Wednesday, he said the contract loss necessitated a second profit warning in a month, after a first that had to be issued alongside the resignation of his finance director — a resignation, and a warning, that some believe could have been avoided.
With De La Rue now the subject of takeover speculation, Mr Sutherland will know he can’t rely on government protection. Might he, too, end up in the departure lounge feeling a little blue?
Hammerson Intu reverse
Hammerson’s retreat from its £3.4bn bid for rival shopping mall group Intu was described by one top 20 shareholder as a “pivot decision”. To Lombard, this represents a useful new coinage: ‘No, I’m not saying I was entirely wrong in that column I wrote last week, it’s just that I’ve since come to a pivot decision . . .’ And it also represents one heck of a ‘pivot’.
Hammerson said on Wednesday that it had reassessed its proposed acquisition of Intu in the light of updated information on “current market dynamics”. But, only last week, Hammerson was rejecting a proposed £5bn offer for its own business from Klépierre of France on the grounds that even a 45 per cent premium to its share price “significantly” undervalued its retail assets.
There were no problems with UK market dynamics then, evidently. Nor a week earlier, when Hammerson’s bullish trading update cited “attractive high-growth markets”, and rising UK mall footfall. Nor four months earlier, when Hammerson said it was willing to pay almost 30 per cent more than Intu’s market value for exposure to its market dynamics.
What has happened in the past six days? Was it the delayed realisation that it might have to relet a few former Carpetright and Toy R Us shop units?
Of course not. It was simply Hammerson having to maintain a convincing bid — and defence — narrative while shareholders were telling it what analysts had been saying since December: now is hardly the time to pay a premium for increased exposure to UK retail, and to reduce diversification. Its third-largest shareholder, pension fund APG, had already intimated as much last week.
Little wonder, then, that investors admired the dynamic pivot on Wednesday, pushing Hammerson shares up 4 per cent.
But shareholders in the wider mall sector should not confuse a pivot with a turnround. As broker AJ Bell noted, if shopping mall valuations are to recover, it will take a catalyst to unlock that value. And Hammerson has just closed the door on two such catalysts.
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