Money

Sainsbury's was naive to pursue Asda but its CEO deserves to stay on


Those who were really in the money, as Mike Coupe likes to sing, were Sainsbury’s lawyers, bankers, consultants and advisers. The supermarket chain clocked up £46m in costs and fees in its deservedly doomed attempt to buy Asda.

Coupe, the chief executive, offered the thin justification that £46m is a relatively small number when set against the £12bn retailing colossus that would have been created if the Competition and Markets Authority (CMA) had not said no. That’s one way to look at it. Another is that £46m equates to roughly 20% of this year’s dividend for shareholders so one could equally say Sainsbury’s spent 10 weeks working for other people. Not good.

Yet the idea that Coupe somehow committed a sackable offence by pursuing Asda is too harsh. The entire board was naive in thinking the CMA could be won over with loose promises of price cuts for shoppers. The question is whether Coupe is still the right person for the job. The answer is surely yes, assuming he accepts that his grand deal-making visions are dead and that the job is once again about hard graft.

Before Asda popped up, Sainsbury’s was doing a decent job of combatting its scale disadvantage with Tesco. As the company is fond of pointing out, it never suffered the big dips in form that afflicted its chief rivals.

If one looks beyond the £46m plus £350m of other one-off charges (restructuring, pensions, bank integration and so on), the actual supermarkets plus Argos did OK last year. So-called underlying pre-tax profits rose 7.8% to £635m. The problem of too many empty shelves – a function of management upheaval in the stores last year – has been now been fixed, apparently.

The grumble that Coupe couldn’t offer a post-Asda plan B also feels wide of the mark. There is no magical formula for escaping the competitive grocery market, which the CMA rightly wanted to protect. Coupe, though, reckons Sainsbury’s can pay down £600m of debt in the next three years while still smartening up 400 stores. That ambition lacks whizz-bang excitement but the gain would still be worthwhile for investors. Let him try.

GVC bets on Ladbrokes

The problem with “legacy” incentive awards, as the board of Ladbrokes owner GVC describes the jackpots for its chief executive, Kenny Alexander, and chairman, Lee Feldman, is that the world can look very different when payday arrives.

At GVC, the legacy that showered £16m of stock on Alexander and £8.2m on Feldman (slightly more than last year in both cases), is the plainly successful acquisition of bwin.party in 2015. But that takeover feels like ancient history after GVC’s latest adventure, last year’s bigger and bolder purchase of Ladbrokes for £3.2bn.

The wisdom of the Ladbrokes deal is unproven or, at least, that’s what the share price suggests. GVC’s stock has tumbled from £11 last autumn to 650p as the company grabbles with closing 1,000 shops and laying off 5,000 staff to cope with the end of high-stakes gambling on the fixed-odds machines.

More to the point, investors have been unnerved by Alexander’s sale of three-quarters of his shareholding at 666p in March, raising £13.7m. That disposal looked very odd because Alexander had been banging on about how the stock market was undervaluing GVC.

He pledged never to sell more shares while he is chief executive but one doubts that will persuade investors to cheer this year’s pay report. About 44% revolted last time when the share price was higher. It is hard to believe their mood will have improved.

British Steel secures a deal

There was no need for the business secretary, Greg Clark, to sound so bashful about his small act of state intervention – a short-term loan of £120m to British Steel. The decision seems reasonable given the firm needs the cash to overcome a difficulty with carbon credits caused by parliament’s failure to approve the EU withdrawal agreement.

UK firms’ access to free carbon permits is suspended until the Westminster pantomime is resolved, leaving British Steel facing a potential penalty from Brussels of £500m on top of the £120m liability. Lending the necessary funds to allow the company to meet its environmental obligations is a common sense solution. The alternative was to put British Steel under “significant financial strain”, said Clark, severely understating matters.

There is obviously a risk the money never comes back – that’s the nature of lending. But given the parliamentary circumstances, the business department was surely honour-bound to do something. And, assuming British Steel does repay, an interest rate of 7% over Libor is hardly a freebie.



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