The asthma inhaler-making company can surely see that healthcare and tobacco don’t mix
First published on Mon 9 Aug 2021 14.27 EDT
The amusing line in the unfunny saga of a tobacco giant trying to buy a company that develops inhalers to treat lung diseases came last Friday when the board of Vectura, the target, switched its allegiance from Philip Morris to the rival bidder, the private equity firm Carlyle. The directors said it wasn’t only Carlyle’s higher offer they liked. They also noted “the reported uncertainties” for Vectura’s stakeholders if the Marlboro men were to win.
Those reports – everything from fury on the part of medical groups to threats to Vectura employees’ membership of scientific bodies – were entirely predictable. But, it seems, the board had failed until that point to spot the problem in a healthcare company accepting Big Tobacco’s dollar. Up until then the directors were prepared to swallow Philip Morris’s pitch that it wants to be a “wellness” company and will quit the fags one day, honest.
Vectura’s recommendation is temporarily redundant because Philip Morris chucked a higher bid, just over £1bn, on the table on Sunday and the Takeover Panel has now ordered that a five-day auction be run to determine best offers.
But a formal auction is not an excuse for Vectura’s board to retire to the labs, or even the bike sheds. At the end of the process it is still allowed to say which offer is best for the company. Exercising a “fiduciary” duty involves more than simply saying a bid of 165p-a-share beats one at 155p. The wider picture – the fluffy stakeholder stuff belatedly acknowledged from the boardroom – matters.
Carlyle is not the embodiment of saintliness, it should be said. In different circumstances, it probably wouldn’t be shy about doing deals with tobacco firms itself. But it looks a better owner of Vectura than Philip Morris for many reasons – experience in healthcare investment, or the presence of Simon Dingemans, a former finance director of GlaxoSmithKline, as its lead figure in the offer.
Vectura’s board can’t undermine the auction at this stage, but, once the bidding is over, the board should return to the principle it finally stumbled upon last Friday: healthcare and cigarettes do not belong together.
Can Macquarie pass the water test?
A “fit and proper” ownership test might also be useful in the UK water sector. If we had one it’s hard to believe the Australian financial group Macquarie, the controlling shareholder in Thames Water from 2008-17, would pass.
Under Macquarie’s ownership, Thames virtually created the caricature of a privatised water company that deploys intercompany loans via complex offshore ownership structures, pays little corporation tax, misses leakage targets and pollutes the environment. The lowlight on the last front was a £20m fine for pumping 4.2bn litres of raw sewage into rivers in 2012 and 2013 in an incident where the judge called the company’s actions “borderline deliberate”.
Even the regulator Ofwat seemed relieved when Macquarie sold its last shares, with its chairman, Jonson Cox, calling on the new owners of Thames to “make a step change in the way [the company] operates and behaves”. Nor was the responsible end of the water industry (yes, it exists) sad to see Macquarie go: it blamed trouble at Thames for fuelling nationalisation fever.
Now Macquarie is back. An investment fund it manages is taking control of the current baddie of the sector, Southern Water, which supplies 4.7 million people in Kent, Sussex, Hampshire and the Isle of Wight and was fined £90m last month for dumping even greater quantities of sewage.
Macquarie is investing £1.07bn for majority control and, remarkably, now presents itself as a customer-friendly saviour. It is talking the language of ‘“multi-year transformation” to make water and sewage services in the south-east “more sustainable and resilient”. Is this credible?
A chunk of new cash is clearly good news. Roughly half will go on paying down the debts of the holding company, Greensands, and the rest will go on new infrastructure projects. It was on that basis that the same Jonson Cox told Macquarie he welcomed “the investment and business drive to which you have committed”.
Well yes, a bit of ambition is more than the current tired consortium, led by the asset management arms of JP Morgan and UBS, has managed. But the poor customers of Southern are now being invited to place their faith in an owner that failed their neighbours at Thames while generating outsized returns (12.5% a year, which is off the charts for a privatised utility) for itself and its investors.
Maybe this time will be different. But Macquarie completely forgot in Monday’s announcement to mention that it controlled the most criticised company in the sector for a decade. That does not inspire confidence.
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