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New Zealand Herald: Plenty of corporate lemons in the orange nation

Saturday April 07, 2007
By Matthew Lynn

ABN Amro Holdings is locked in negotiations with Barclays about creating one of the largest financial-services companies in the world. They may seal a deal.

Or another bank may yet decide to gatecrash the party.

Still, one winner is already clear: the Dutch economy.

That may seem paradoxical. The political and industrial establishment of the Netherlands would be horrified at the prospect of hostile raiders and hedge funds destroying the cosy cartel of companies that form the backbone of the economy.

They are wrong. A shock to the system is precisely what the Netherlands needs. Many of its biggest companies are bloated and poorly managed. The threat of being taken apart is just what they need to shake them back to life.

“We resist shareholder pressure in the Netherlands,” said Hans Labohm, guest lecturer at the Clingendael Netherlands Institute of International Relations in the Hague. “But we need more pressure on managements from shareholders, otherwise the people in charge become a little bit lazy and complacent.”

There is little questioning the size of the shock to the Dutch financial system delivered by the attack on ABN Amro. The bank, valued at about €62 billion ($115 billion), is among the biggest companies in the Dutch economy.

If ABN Amro is taken over, no company in the Netherlands is safe. And rightly so. In the past decade, Dutch industry has hardly put in a stellar performance.

ABN Amro’s underperformance was first highlighted by the British hedge fund TCI Fund Management, which built a stake and started demanding changes in the way ABN Amro was managed.

There were plenty of other targets it could have chosen in the Netherlands.

How about taking a pop at Royal Dutch Shell? In 2004, it emerged that the Anglo-Dutch oil company had overstated its reserves, leading to lawsuits from investors and fines by regulators. True, Shell has stabilised since then, but it is hard to escape the impression it has been eclipsed by longtime competitor BP.

Or how about that other Anglo-Dutch colossus, Unilever? In recent years, it has been one long story of missed forecasts, and growth initiatives that have failed to come to life. Likewise, Dutch companies such as Royal Philips Electronics haven’t exactly been setting the world on fire.

Of all Europe’s trading nations, the Netherlands may have some of the finest traditions. In recent years, however, it has looked more like a retirement home for corporations.

So far, there is little sign the establishment is willing to accept hostile raids and troublesome hedge funds.

After the talk of an ABN Amro takeover, Nout Wellink, the president of the Dutch central bank, described the moves as “a bridge too far”.

Meanwhile, Dutch lawmakers have been stepping up their attacks on the kind of investor activists willing to take on Dutch companies. That is completely upside down. It has been the absence of pressure from shareholders, not its arrival, that has plagued the Dutch economy in recent times.

In the fourth quarter, the economy slowed as household spending declined. Gross domestic product expanded just 0.6 per cent from the previous three months, while other euro-area economies boosted growth as exports and spending surged.

The Netherlands is a small, open economy that depends on trading for its survival. There is no big domestic demand to fall back on.

Nor is there much evidence of a new wave of entrepreneurial young businesses. If its big companies don’t perform, neither does the Dutch economy.

Retreating into a narrow-minded protectionism is no way to deal with the challenges. Neither is resisting a new wave of active shareholders.

The Netherlands has coasted on the achievements of its established businesses for too long. The sooner that more hostile breakup bids are made, the better.

– Bloomberg


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