UK’s competition watchdog needs some competition

Why is there only one competition regulator? What once was a joke has become a pressing question for government.

Andrew Tyrie is scathing about the watchdog he used to run, accusing the Competition and Markets Authority of disregarding consumer protection while throwing its resources at mergers and antitrust. Most of his criticisms stem from the Competition Commission’s merger with the Office of Fair Trading in 2014 — a union designed largely to reduce the opportunity for legal challenges that had become an embarrassment.

But lumping together consumer protection and cartel-busting functions over-incentivised the CMA to look for big wins. By obstructing takeovers and pursuing multinationals with trend-following actions the CMA can claim to create more hypothetical economic value per pound spent than from its piecemeal work of market monitoring and tracking down rogue traders.

Something needs to change, and urgently. Competition will lessen across myriad sectors as coronavirus support is turned off, while the local councils that took over many of the OFT’s obligations are already at breaking point. The quickest fix available is to break up the CMA.

2021: a Spac oddity

Remember the Techmark? In November 1999, the London Stock Exchange launched the technology-heavy index to capture some of the fumes from the dotcom boom. In March 2000, the bubble popped. You don’t need to be a financial whizz to guess what happened next, writes Jamie Powell.

London’s role at the leading edge of capital markets has always been a source of consternation for its leaders. Rash, return-chasing decisions are testament to that. Which brings us to Wednesday’s news that former LSE head Xavier Rolet wants London to embrace the Spac revolution gripping Wall Street.

Special purpose acquisition vehicles are listed cash shells that spend a set period of time hunting for a company to swallow. If they don’t find one, the cash is returned to the investors. If they do, the target gains a market listing without having to follow the flotation process and its related regulations. In nearly all of the cases when a deal is done, it’s a bonanza for insiders.

Cash shells are not particularly unusual in the UK market: Melrose was one once, as was Sir Martin Sorrell’s S4 Capital. Nevertheless, the LSE’s post-deal trading restrictions and a general scepticism over the gambit has meant the boom has happened elsewhere. A case in point: a mooted $750m Spac listing led by businessman Sir Martin Franklin has yet to surface.

Given the seeming lack of enthusiasm for Franklin’s deal, Rolet’s proposal does beg the question: why? There are always arguments to be made about loosening regulation. But doing so to aid companies avoiding the scrutiny of a traditional listing seems a sure-fire way to make everyone rich apart from the investors.

Moreover, London is unfashionably late to the party. Spacs have raised $55bn in the US alone this year, more than half the 2020 total, according to Spac Research. This gold rush suggests the quality of private companies available is rapidly diminishing with every transaction. The best the LSE can hope for is to be left with the dregs of tomorrow’s tech hopefuls.

Synthomer’s Odyssey

What a curious week it has been for Synthomer, the FTSE 250-listed brewer of polymers used in medical gloves, insoles and artificial turf.

On Monday its shares hit a two-year high after recording their biggest daily jump since October. On Tuesday the entire gain reversed. An explanation for the skittishness came only after the close of trade: CVC had made an initial approach to Synthomer to gauge interest in a deal, but the parties were not currently in negotiations, Bloomberg reported.

CVC is a natural buyer for Synthomer, which is at a crossroads after Calum MacLean resigned unexpectedly last month after six years as chief executive. The private equity group has a history of dabbling in chemicals, having invested in Evonik Industries of Germany and US distributor Univar, and has companies in its portfolio that could dovetail into Synthomer’s operations. There are easy wins on offer from putting Synthomer together with AOC, a CVC-owned coatings maker, and AnQore, its supplier of ingredients to a nitrile glove market that provides at least a fifth of the UK group’s earnings.

Synthomer said on Wednesday morning that it was not in offer talks — a statement generally understood to confirm that an approach was made and that negotiations had ceased for the moment. In response, and in contrast to recent days, the stock did nothing.

That looks rational. An enterprise value of slightly more than 7 times this year’s underlying earnings puts Synthomer on par with the speciality chemicals sector, whereas takeovers in the space tend to require an ebitda multiple of 11 or 12 times. Even the bottom of that range needs a bid premium in excess of 50 per cent. It’s a lot to pay for a stock already close to its record high, in a year when vaccine efficacy will determine whether demand for gloves has peaked.

The gap between what shareholders expect and what a bidder might pay looks unbridgeable for now. The only useful lesson to take from the week’s share-price gyrations, therefore, is the one investors should already know: someone, somewhere, always knows more than you.

Spacs: jamie.powell@ft.com
CMA/Synthomer: bryce.elder@ft.com