Financial Mail on Sunday: “…RIDING ROUGHSHOD OVER SMALL INVESTORS”: “The issue first came to prominence this year when Shell merged its Dutch and British arms, leaving thousands of individuals with capital gains tax bills often as high as a third of the value of their shares. Shell was persuaded to rethink, but not before 3,000 had sold out and handed much of their windfall to the Exchequer. Such thoughtlessness is…”: 4 December 2005
Lisa Buckingham column
Daily Mail - London
RAIDERS RIDING ROUGHSHOD OVER SMALL INVESTORS: The cascade of overseas takeover bids in the London market should -- patriotic ownership concerns aside -- be good news for shareholders.
Stock market prices have been electrified by the corporate activity, cash will come flooding into the pockets of investors and most will make its way back into the market, further priming the price pump.
But, once again, it is the small shareholders who risk being the only losers.
Spain's Telefonica has structured its supremely generous bid for mobile phones group O2 so that individuals may take a loan note allowing payment at a future date in an attempt to minimise capital gains taxes. But St Gobain of France has had no such concerns for the small shareholders in plasterboard manufacturer BPB.
There are several other foreign bids that have materialised, or are expected to -- P&O and Pilkington for example -- and their terms for anyone other than gigantic institutional investors are not yet clear.
The issue first came to prominence this year when Shell merged its Dutch and British arms, leaving thousands of individuals with capital gains tax bills often as high as a third of the value of their shares.
Shell was persuaded to rethink, but not before 3,000 had sold out and handed much of their windfall to the Exchequer.
Such thoughtlessness is by no means confined to foreign raiders. However, Angela Knight, chief executive of Apcims, whose members act for private investors, is convinced that there is a greater risk of this class of investor being unfairly treated when the predator comes from abroad.
And while overseas-based executives could be forgiven for not quite getting to grips with the UK's legal and taxation framework, their highly remunerated advisers cannot.
It would cost absolutely nothing to make the terms of a takeover offer friendly for small shareholders. They need to be offered a loan note alternative to cash to allow them to spread gains on their shareholdings.
And bidders should provide "partial election."
This arises because shares are increasingly held "virtually" rather than in certificate form. And because of legal complexities, these are overwhelmingly held in nominee accounts run by stockbrokers.
In the past, the underlying beneficiaries were segregated, but new regulations have made this expensive and now all these investments are pooled.
From the point of view of the company in which the shares are invested, the nominee company is the owner.
The problem arises when different investors within the nominee company umbrella want to take different decisions.
When insurance group Aviva acquired RAC, all investors were forced to accept the decision of the broker, which meant that many were deprived of their first choice on whether to take cash or shares.
At practically no cost -- other than adding a few words to the bidder's offer document -- this mess could be sorted out.
If nominee holders were offered partial election, it would give the broker the freedom to act as each individual shareholder wanted.
A shareholder is a shareholder is a shareholder, no matter how they hold those shares and whatever the size of their holding.
It is iniquitous that smaller shareholders are deprived of choice, frequently at considerable cost. For the tens of millions of pounds that bid advisers now charge, they should start getting this one right.
Little wonder that fund managers are underwhelmed by Lord Turner's report on pensions.
His national pensions saving scheme -- which would collect four per cent from employees, three per cent from employers and one per cent from the Government -- allows only 30 basis points to cover all costs.
Within that, a mere eight basis points -- eight one hundredths of one per cent -- are allowed for investment management charges.
As a report by pensions expert John Ralfe for investment bank RBC Capital Markets points out, this will eliminate all but the very cheapest passive index managers. Active fund managers who try to pick stocks rather than hugging the index will be unable to compete.
In time, companies with defined contributions schemes will shift over to the national scheme to save money and individuals might transfer-in their private pensions.
Index-tracking funds have to put the squeeze on the companies in which they invest as this is their only real hope of improving returns since they cannot sell while a firm is in their target index.
But the behaviour of trackers, particularly when combined with the dysfunctional spread of sectors in the premier FTSE 100, now dominated by oils, miners and banks, could produce some peculiar results if their power increases.
Click here to return to ShellNews.net HOME PAGE