Boots - another fire sale?

Press comment today argues that 'there seems to be little choose but to accept £10.40' (the level of the likely bid for Alliance Boots).

If this is accurately reflecting prevailing sentiment in investment community there is little hope for the future of public share ownership. The existing mechanism for transferring ownership of a company as a whole is seriously defective if it allows insiders to bid for assets they should manage as fiduciaries or if outsiders get preferential access to information (when a company agrees to open its books to a prospective bidder). Investors that buy shares not just for a quick punt but in view of holding them for the long term or until a certain value point is reached are also unceremoniously squeezed out in a voting process that is biased in favour of auctioning off the ongoing concern to any bidder who gets a relatively narrow majority of shares.

Management should not be in the business of selling the business. It is mandated to manage a business and the stock market should decide who controls the selection of management or whether or not a company is being sold.

As we have repeatedly argued, the process of how public shareholder-owned companies are being sold short-changes the public holders of its shares. If a bidder wants to pay £10.40 for each Boots share and the majority accepts, the holders that would only have sold at higher prices are in effect forcibly separated from the asset. If the bidder is forced to buy all shares at the highest price necessary to obtain a quorum of say 95% it would mean that the takeover could only be effected at a much higher price.

As the business of takeover regulation in the UK is dominated by producer interests (stockbrokers and investment bankers) it is incumbent on public shareholders to organise a more forceful lobby to prevent the transfer of value to the promoters of buy-outs.