Mark Kleinman: Metro Bank’s investors deserve answers, Entain’s bad bets and John Allan’s return
The must-read column from the man in the know: Sky News’s City editor Mark Kleinman
Metro Bank’s investors deserve answers
2023 is turning out to be a banner year for weekend overtime at Britain’s banking regulator. After officials’ February night-shifts overseeing the rescue of Silicon Valley Bank and UBS’s emergency takeover of Swiss banking rival Credit Suisse, the latest, pre-Hallowe’en, episode managed to avert a full-on horror show.
Investors who sent Metro Bank shares soaring on Monday, though, must feel more like they’ve been tricked than treated. Dilution on an epic scale is indisputably preferable to a total wipe-out via a Bank of England resolution process, but many long-suffering shareholders will be wondering – legitimately – what the company’s board has been playing at.
In particular, my disclosure last weekend that Metro Bank had received a takeover approach from the mid-sized business lender Shawbrook Bank after it had disclosed to the stock market that it would need to explore capital-raising options feels like a serious dereliction of duty.
Even now, that bid interest has not been addressed publicly by Metro Bank chairman Robert Sharpe; that may be entirely appropriate on the basis that an offer was derisory, not deliverable or subsequently withdrawn, but in the circumstances, shareholders surely have a right to know.
In the end, Caius Capital, an activist hedge fund known for its pugilistic approach to previous bank restructurings, appears to have done its fellow bondholders a favour by orchestrating a viable blueprint on which Metro Bank’s board was curiously reluctant to engage.
While the bondholders themselves have proved reluctant to break cover, I understand that Hewes Fund Management, 683 Capital Management and Bracebridge Capital, a trio of American hedge funds, were also key participants in the restructuring hammered out over the weekend.
I doubt any of them regard the deal as representing much more than a sticking plaster. Metro Bank shares are 99% down from their 2018 peak, and its chief executive is now talking about a move into specialist mortgages – surely a red flag when the company has been so poor at getting the basics right. If I was a long-standing investor in the stock, I’d be demanding answers about why it has performed so disastrously, and why its board doesn’t seem a little more contrite.
Entain’s bad bets triggers questions over leadership
Talk about a gamble. Nearly three years after the board of Entain, owner of the bookmakers Coral and Ladbrokes, loftily rebuffed a takeover offer from US-based rival MGM, shareholders are starting to think their luck has run out.
Less than two months ago, Entain’s board set aside £585m to pay a looming fine from British authorities for alleged bribery offences at the business it used to own in Turkey.
It followed that bombshell with something equally unwelcome: an admission that online gaming revenues would fall this year, sending its stock nosediving and raising questions about the company’s strategy.
Shares in Entain have fallen nearly 14% over the last 12 months, while those of Paddy Power-owning rival Flutter Entertainment are up by more than a third. William Hill’s owner, 888, has seen its value barely changed during that period.
Little wonder, then, that Jette Nygaard-Andersen is under pressure. Sources say activist funds are closely examining Entain amid questions about its direction, adding to heat already being applied by Eminence Capital.
Take the rejection of the MGM bid in early 2021. It was structured as a paper offer worth about £8bn at the time, or 0.6 MGM shares for each Entain share. Had that been accepted, the British company’s investors would today have been sitting on stock worth about 95% more than what they hold today.
In fairness to Barry Gibson, Entain chairman, it was not only its board which dismissed the transatlantic offer; many of his shareholders also called for him to hold out for a bigger premium.
Like most punters’ hopes at the bookies on a Saturday afternoon, that possibility has evaporated – along with its ability to move strategically.
One analyst said Entain would have been a logical buyer of PlanetWin, a Maltese-based gaming group focused on the Italian market. Instead, I understand it dropped its interest, mindful of the market reaction earlier this year when it tapped shareholders to fund the purchase of STS, Poland’s leading sports betting company.
Instead, it has left the field clear for two London-listed rivals – Playtech and Flutter Entertainment – and the Italian gaming giant Lottomatica. The time may be approaching when Entain’s board and shareholders need to decide whether to stick or twist on its boss’s leadership.
Tesco’s Allan to put boardroom experience to good use
There was considerable unease in the City this year when John Allan, the former Tesco and Barratt Developments chairman, was forced to step down prematurely from both roles after unsubstantiated allegations about his conduct.
His supporters, then, will be pleased to see him back on the boardroom circuit. I understand he has just become a senior adviser to The 350 Club, a ‘closed community’ network for directors of large public companies.
Founded by Marianne Macdonald, it is designed to facilitate collaboration over common themes such as the challenges posed by artificial intelligence and ESG.
“Our mission is to make open what has often been closed in the board space, including connections, visibility, vacancies and research, without pestering members or advertising,” Macdonald told me.
In that context, Allan’s experience as one of the most prolific figures in British boardrooms over the last two decades will be invaluable.