Think of William Layne, a retired permanent secretary in the Ministry of Finance, and some things come quickly to mind.
“A straight arrow who is not afraid to speak his mind,” a former Cabinet minister said the other day.
“He knows Barbados’ economy and recognises what must be done to get it moving again,” added a senior civil servant who requested anonymity because he wasn’t authorised to speak on the issue of the takeover bids for Banks Holdings Limited (BHL) by ANSA McAL and AmBev through subsidiary SLU Beverages Limited.
Layne seemingly confirmed those assessments when he called out Barbados’ private sector during a public discussion sponsored by the Institute of Chartered Accountants of Barbados on the proposed takeover of BHL.
He described the nation’s private sector – the corporate directorate and senior executives – as an “inept” bunch of decision makers who failed Barbados when they didn’t put up their money at a time “when we were riding high”. Just as important, he correctly focused attention on why he and others share this common sense approach to investing their hard-earned resources in private firms.
“Why am I investing in a company? To make money,” was the way he answered his rhetorical question. “I am not investing for national sentiment because I like the manager or I like the board.”
We said it makes perfect sense. Interestingly, as the BHL discussion continues, some hard facts of life are staring Barbadians in the face. One is that they don’t like taking investment risks. Another is that people talk a good game after the fact.
That explains why in response to the debate many of them appear to be asking the wrong questions. Instead of following Laynes’ lead and that of David Simpson, a former ICAB president, by looking at the role of domestic and foreign investment in the resuscitation of Barbados’ sick economy, they are channelling a lot of energy into nationalism and emotion asking: “Are we selling the family silver to foreigners?”
The truth is that Barbados needs all of the investment it can generate to help pay down its monstrous and potentially unsustainable debt, maintaining its current lifestyle; and keeping foreign reserves at an acceptable level. After all, if a bank in Trinidad and Tobago can acquire a majority stake in the former Barbados National Bank, a homegrown and sound financial institution and a Canadian energy company can take over the Barbados Light & Power Company Limited, then the acquistion of BHL by a foreign brewery shouldn’t be considered a line in the sand that can’t be crossed.
Undoubtedly, the current wave of mergers and acquisitions in the United States (US) and elsewhere isn’t going to end anytime soon. As a matter of fact, when Deloitte, a sprawling international financial services company with a significant presence in Barbados, polled 2 500 US companies and private equity firms, it found the pace of mergers and acquisitions was gaining momentum and advised it would continue through next year. The explanation was simple.
“Given the large amount of cash on corporate balance sheets and low interest rates, and as long as the stock market is steadying and raising, the environment is ideal for [mergers and acquisitions],” said Tom McGee Deloitte’s deputy chief executive officer.
“We’ve seen robust activity recently and barring significant geo-political or other unforeseen events, the stage is set for continued momentum in transaction activity.”
For example, the blockbuster merger, the Anheuser-Busch all-call deal for its multi-national rival SAB Miller valued at more than $104 billion, was consumated a day or two ago and must now pass regulatory and anti-trust muster in Washington. The Justice Department and the Federal Trade Commission are to scrutinise the consolidation’s impact on consumers and shareholders.
Another mega deal is the big airline coupling involving American and US Airways, which has resulted in a dwindling of national carriers from six to four in the almost seven years since US President Barack Obama moved into the White House in early 2009. As a result, the behemoth airlines – Continental, United, American and US Airways – now carry most passengers across the country while service plummets.
Mergers and acquisitions are also being consumated at breakneck speed in pharmaceuticals and technology. Between January and October, drug company mergers were valued at US$328 billion, stated Dealogic, a provider of information. The combining of pharmaceutical firms is second only to those in the technology sector.
But are the deals bringing more value to shareholders? People like Layne? McKinsey, a consulting US firm answered in the affirmative, but success isn’t across the board. It depends on the industry.
Pharmaceuticals have created significant shareholder value, which is vital for the long term future of the acquirer, while in the tech industry the returns have been marginal at best, according to The Economist.
“Too often deal-making disappoints,” warned the major weekly British publication. In the case of Barbados, any absence of regulatory scrutiny may force the courts to keep a watchful eye on shareholder interest to ensrue that corporate boards live up to their fiduciary responsibility to neighbourhood shopkeepers, retired civil servants, taxi drivers and housewives who expect their investments to help boost their National Insurance and other pensions.
In the US, legal challenges to mergers and acquisitions are a fact of life and at least delay consolidations. When Eric Holder, the first black US attorney general headed the Justice Department, the anti-trust division successfully blocked or slowed down the consummation of merger deals. There isn’t a comparable regulatory mechanism to look out for shareholders and consumers in Barbados.
The trouble is that the courts are in a mess with a horrendous backlog of civil cases on their hands that is forcing litigants to wait years for justice. An effective parliamentary committee system in Bridgetown that uses public hearings and threats of legislative actions to prevent abuses of shareholders and consumers arising out of mergers and acquisitions is an answer. But don’t hold your breath.
