Judge and Jury: LucasVarity shift is halted by shareholder reluctance - Better investor relations could have changed the outcome of the attempt by LucasVarity to relocate to the US, says Charles Lewington, chairman, Media Strategy

Following the merger of Varity with Lucas in 1996, CEO Victor Rice moved quickly to change the Lucas management culture for the better.

Following the merger of Varity with Lucas in 1996, CEO Victor Rice

moved quickly to change the Lucas management culture for the better.



But where shock treatment may work for managers, it rarely works for

shareholders. Many analysts were not in the least surprised at Rice’s

failure to convince sufficient UK shareholders that LucasVarity should

decamp from London to the US. It was a shame because his reasons for

emigrating were good ones.



There is a commercial case for plugging an ambitious automotive parts

corporation into pools of cheaper US acquisition capital. UK investors

may be sentimental about big name UK companies going abroad, but they

are not so sentimental that they pile into engineering stocks - which

remain unfairly undervalued as a consequence.



These arguments are complex but not impossible to get across. There did

not appear to be an attempt to provoke a debate in advance about the

relative cost of US and UK capital so the company’s rationale for the

NYSE listing came as a surprise to many. One large shareholder Mercury

Asset Management had clearly been squared, but LucasVarity had not

convinced its biggest UK shareholder Schroders, which voted against the

move. The rest of the UK pack followed suit.



The lessons from the affair are largely tactical. The size of the voting

threshold was set, at 75 per cent, unreasonably high in this case. The

second problem was the quality of the US ’paper’ that shareholders were

being offered in exchange. Third was the lukewarm City support for

LucasVarity’s existing policy of offering share buy-backs.



According to Andrew Lorenz in the Sunday Times, defeat never entered

Rice’s mind. This was a mistake, because investor opinion is not unlike

public opinion - it can take a sharp and unexpected turn if not handled

carefully.



I do not believe it was down to bad PR, the company clearly had a

long-standing investor relations problem. There should have been more

regular contact between the CEO, analysts and fund managers. With Rice’s

gung-ho reputation someone should have warned him that this operation

would not be plain sailing.



Where ’Britishness’ is an issue among shareholders, you can never be too

careful.



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