Sunday Telegraph: Private equity poses new challenges for the scourge of ‘bullies’: shareholder activists

Last Updated: 1:03am BST 01/07/2007

David Cumming of Standard Life hates to see companies selling themselves cheap, but he says buyout firms also have a lot to offer. Richard Northedge reports

Weak managements and mean bidders have reason to fear David Cumming. Institutional fund managers are usually anonymous and dull; but the head of UK equities at Standard Life has developed a reputation for riding to the rescue of British companies in danger of being sold on the cheap.

Cumming has put his head above the parapet to back Royal Bank of Scotland’s bid for ABN Amro rather than the rival offer from Barclays, and he has told the Dutch Akzo Nobel it must increase its offer for ICI.

The furore over the power of private equity – the purchase of Boots, the FTSE100 high-street chemist, by US buyout giant Kohlberg Kravis Roberts, earlier this year marked a watershed – has put even more pressure on Cumming and his counterparts to make sure they extract value.

“I do not think private equity is negative,” he says. Indeed Cumming, 45, sees them as allies. “The pressure to make sure companies do the right things and have efficient structures comes from private equity, but you would not want an extension of the short-term approach.

“It’s important that when bids are made from private-equity vehicles the management defend themselves if the price is not appropriate.”

He publicly criticised Debenhams for selling itself too cheaply in 2003 to private equity funds that refloated it at a high price just years later, only to see the shares fall. He hopes shareholders have learned from that experience.

But Cumming’s focus on value has put him at loggerheads with directors. On the wall of his Edinburgh office are the heads of businessmen whose downfall he has successfully sought, including Lord Marshall of British Airways, Graham Wallace of Cable & Wireless, Michael Green of Carlton and Sir Philip Watts of Shell. He also opposed the £3m pay-off to BT’s chief executive Sir Peter Bonfield as unwarranted by performance.

Not all his battles secure a scalp, however. He unsuccessfully led opposition to James Murdoch being made chief executive of BSkyB. “The issues were valid,” says Cumming, conceding nothing. “BSkyB is having a really tough time but I’m sure he’s doing his best.”

The announcement that Cumming is on the phone must send shivers through any chief executive but he insists he is welcomed. “In general, companies like to see Standard Life on the register,” he says. “I’m confident companies are happy to see us. We’re a long-term shareholder and we normally back existing management.”

Indeed, he is backing ICI in rejecting Akzo, but sometimes he has had to stiffen management spines. He had already told Corus executives to be more robust with the Dutch advisory board that blocked the sale of its aluminium business; when directors recommended a 455p bid from Tata last year Cumming told them to stick out for at least 600p. He was mocked – but Tata finally paid 608p.

The Standard Life director, who manages £35bn, protests at being called an activist but concedes he is more outspoken than other life or pension companies. “I’m a bit surprised the big institutions are not more forthright,” he admits. “The key is that management does not get bullied and pushed into taking action.”

The campaign by John Mayo to force Vodafone to demerge Verizon Wireless thus causes Cumming a dilemma, not least because the Standard Life executive called for Mayo’s dismissal from the collapsing Marconi six years ago.

Cumming likened Vodafone shares to a lottery ticket last year and compared its boardroom upheavals to the court of the Borgias on a bad day, but Arun Sarin remains chief executive and the shar es have risen. Says Cumming: “At that juncture we were comfortable with that position.”

Mayo is not the only part of Cumming’s past to catch up with him. Standard bitterly opposed Sir Philip Green’s £850m takeover of Arcadia based on the purchase of Baugur’s 25 per cent stake. Cumming wanted 500p a share but Green was offering only 408p and bluntly told the fund manager that if he thought the shares were worth 500p he should buy out Baugur at that price.

Cumming thought Stuart Rose was doing a good job at Arcadia and backed him again when Green bid for Marks & Spencer. The opposition caused Green to drop his mooted 400p offer and when the shares eventually edged toward that level Cumming declared his stance vindicated. “I’ve no issues with Philip Green as a human being,” Cumming says, but adds that history has confirmed that his bids undervalued M&S and Arcadia.

Cumming came to Standard after stints at Royal London, Manulife and Morgan Grenfell before he developed his activist streak. Nicola Horlick blames him for telling her Morgan Grenfell bosses she planned leaving to join ABN Amro, provoking her famous flight to Frankfurt to plead with the German owners to keep her job. She says Cumming held a grievance because she had turned him down for a job when she was at Mercury.

“I do not want to go down that route,” is all he will say a decade later, but a year after that episode he left the Square Mile to return to his university city, managing pension funds for Standard. Despite his Scots accent he was born in London, moving to Scotland at the age of seven.

Cumming is based in Edinburgh just a seven-minute commute from his office. But he denies that working in Scotland influences his support for Royal Bank over Barclays. “It’s irrelevant,” he says.

Six years after becoming Standard’s head of equities, the mutual converted into a quoted company last year and is now vulnerable to the sort of attacks Cumming makes on other public companies. Does it cramp his style or must he constantly look over his shoulder?

“The best way to defend yourself is to deliver. If you do that, it’s going to be far more difficult for anyone to bid for you or demand change.”

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/07/01/cccumming101.xml

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