Scottish self-rule creates new cross-border corporate climate

The devolution of political power to Scotland has brought a nationalistic fervour to cross-border financial takeovers, says George Pitcher

Last week’s European soccer side-show between England and Scotland was engaging from a business point of view, for a number of reasons. Firstly, there was the ineptitude with which the Football Association organised ticket distribution and encouraged opportunism – as Wembley’s ticket-line overheated, some enterprising colleagues of mine bizarrely secured 24 tickets through pop group B*Witched’s Website.

Then there is the harsh reality that England, home of the most prosperous Premiership in the world, could only scrape through to qualification against a nation that is much poorer financially, but richer in native sporting passion. The Premier League, caught in a Faustian commercial pact with Rupert Murdoch’s BSkyB, may wish to reflect that the foreign talent which has made English football so lucrative has been attracted only by money – and money may just as easily attract it elsewhere. You can’t buy national spirit.

The England/Scotland football fixtures are a parable for our corporate times. In business as in football, Scotland may not always have the resources, but it has the passion. Much to Scottish resentment, North Sea oil revenues may have been frittered away under Margaret Thatcher for narrow, southern political purposes, but the Scots are unlikely to allow their pre-eminence in retail financial services to be pillaged by the Auld Enemie. This must be especially true since the devolution of a Scottish parliament and, with it, at least the makings of financial self-determination for Scotland.

This self-determining Scottish pride stirred in two recent cross-border corporate moves that have nothing to do with football and everything to do with financial services. The first is Bank of Scotland’s hostile takeover bid for NatWest; the second is Lloyds TSB’s agreed takeover of Scottish Widows.

We await the delayed regulatory deadlines in the new year for Bank of Scotland’s &£22bn offer for NatWest. Old rival Royal Bank of Scotland will eventually have to put up or shut up. Not unlike the Premiership, there may be foreign talent that reckons it could put some style into NatWest’s game – France’s Societé Generale has been mentioned in this context. And it’s always possible that NatWest may come up with something better to defend itself with than its proposed purchase of Legal & General, a scheme stymied by Bank of Scotland’s bold initiative.

But it was some of the early undertakings, back in September, that may ultimately prove more significant than any future attempts on NatWest’s destiny. Bank of Scotland is operationally tiny in comparison with NatWest – some 320 branches, against NatWest’s 1,700.

Don’t anyone dare breathe, however, that Bank of Scotland intends to “move south” if it is successful in its ambitions for NatWest. The Scots have made it clear that the bank’s head office would remain in Edinburgh. It may talk of national (meaning UK) or international developments, but it has reassured its staff, customers and investors that it considers Edinburgh to be its executive base.

Well and good – much is said during the opening shots of a hostile takeover bid that does not stand up to the passage of time. It is traditional, for instance, for the defending chairman to claim that an initial offer undervalues the company and should be rejected out of hand by shareholders. It doesn’t stop him taking a huge pay-off from those shareholders when the offer succeeds. These things are said as part of the game.

But this view is to underestimate Scottish pride and sense of identity, which is equally evident in Scottish business – especially financial services – as it was at Wembley last week. The agreed &£6.8bn takeover of Scottish Widows by Lloyds TSB further demonstrates this nationalistic fervour.

Scottish Widows finds itself right in the Christmas mail for its members’ meeting to approve the takeover – now scheduled for three days before Christmas. It has taken some six months for Scottish Widows to get around to these all-important formalities – particularly important to policyholders, who stand to collect some &£5.7bn in windfalls. When Scottish Amicable was acquired by Prudential in 1997 and NPI by AMP this year, their conversions from mutual status were completed in three to four months.

There could be any number of plausible and prosaic reasons for the delay. There has had to be a &£1.3bn contingency fund established to protect Lloyds TSB from Scottish Widows’ exposure to guaranteed annuities and other costly liabilities. Scottish Widows has also been resisting attempts by the Inland Revenue to tax those windfalls under income rather than capital gains tax.

But these are part and parcel of major deals. Altogether more likely is that Lloyds TSB’s decision to move some &£80bn-worth of funds to Edinburgh-based Scottish Widows didn’t find favour with its own City-based Hill Samuel Asset Management. Hence a time-consuming turf war.

I don’t think it’s unduly nationalistic to suggest that this kind of trouble is cultural. I’m not advocating a reconstruction of Hadrian’s Wall. But I do think it’s worth pointing out that, as we devolve governmental power to Scotland, we are creating a new cross-border corporate climate that is every bit as challenging as anything we might encounter elsewhere in Europe.

George Pitcher is a partner of issue management consultancy Luther Pendragon

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