Preaching about the environmental, social and governance (ESG) agenda has become the lodestone of big investors.
Similarly, companies and their boards respond with ever more detailed ESG reports and endless bromides about purpose.
Yet when there is money on the table, ESG principles rarely trouble flaccid boards of directors or big battalion shareholders who are only too willing to take the cash and scram.
Moral cowardice: If there was any board which should have held firm on social and governance grounds alone it was that of Vectura, which has sold out to tobacco giant Philip Morris
It is not just ethics and governance which are tossed to one side, but fiduciary duty is compromised.
By often accepting the first offer on the table, only to see rival bidders drawn in at substantially higher prices, the very best deal for investors can be lost.
Amid recent takeover frenzy, one of the few boards to put up a fight over price and ownership was that of security group G4S, at the time headed by John Connolly.
The outcome may have been the same, in the shape of a private equity-dominated buyout, but a proper defence of a hostile offer, ending in an auction, resulted in a better price and a robust airing of all the arguments.
If there was any board which should have held firm on social and governance grounds alone, it was Vectura’s, which has sold the pass to Philip Morris, one of the least socially desirable companies in the world.
Tobacco firms are death machines – just look at the warning on any cigarette packet. Virtue signalling, by buying into the healthcare pioneer Vectura, is not going to change the dial.
There can be no guarantee that Vectura R&D and science isn’t going to be used for the wrong purpose.
Adopting a dated stock market practice, the Marlboro cigarette group effectively fixed the outcome by grabbing 29 per cent of the shares in the open market.
Even so, a board, with an experienced life sciences chairman in the hot seat, the Frenchman Bruno Angelici, could have followed the example of a fellow French citizen Pascal Soriot at Astrazeneca and told buyers to take a hike.
Instead, Vectura found itself in the uncomfortable position of conducting an informal auction between big tobacco and private equity giant Carlyle. The fact that Marlboro man was only able to muster 45.61 per cent of the minority holders speaks for itself.
The fury of medical groups such as British Thoracic Society, which represents asthma sufferers (including my own family), should have been taken much more seriously by the board and those shareholders taking the poisoned shilling.
Rightly, Vectura will never be allowed anywhere near such groups any longer. As we report, Axa is among those investors honest to their ESG principles in speaking out against the deal.
The moral case against Philip Morris overrides all other factors. What it does demonstrate is that company chairmen and boards cave in far too quickly to marauders without even doing the sums properly.
The phenomena is not confined to the UK. The board of German-quoted pet food supplier Zooplus bit the hand of buyout firm Hellman & Friedman, but eventually acceded to an 18 per cent higher bid from the same party having initially failed to get a good deal for shareholders.
Both UDG Healthcare and St Modwen Properties both accepted the first offer from financial buyers Clayton, Dubilier & Rice and Blackstone respectively. In effect, they were made to look foolish when the prices were forced higher.
In both cases dissident shareholders made enough noise for the offer prices to be raised. By allowing themselves to be seduced by low-ball offers, the directors opted for a simple life.
That’s before anyone even engaged in any ESG aspects of the offer such as governance and transparency and the social impact of falling under private equity ownership. In almost every case there is another buyer in the wings.
It emerges now that KKR, with the experience of UK-based Pets At Home, was a potential rival bidder for Zooplus, but stepped aside after the board accepted the first sub-octane offer.
A better process would be for boards to announce that they have an offer, in effect acknowledging they are up for sale, and test the waters to see if an auction develops. This is what tends to happen in the US.
A flawed bidding process is bad enough. What is intolerable is an ethical vacuum which is allowing big tobacco to take control of Vectura.
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