The Bank Tragedy
It certainly was a sad day when I learned that the Co-operative Bank is to become a majority investor owned company in the hands of vulture funds when the full deal is announced on Monday 28th October. Although that was not Plan A, it is perhaps not surprising given the hard ball played by the vulture funds.
I have been working on PECOL here in Brussels since Sunday and just learned the bank news last night. Many lessons need to be taken from this. I’ll save my detailed blogging for next week when the technical details are out on Monday. For now, the FT and the Co-op Group announcement that it will keep only a 30% stake are both interesting .
The reason that the 30% equity stake is said to give the Co-operative Group “control” is that it is the biggest single stake. 30% is also a “magic figure” under the Takeover Code and is defined as de facto control – “30% of the voting rights of a company is treated by the Code as the level at which effective control is obtained” says the Takeover Panel web site. However, the vulture funds/former bondholders will have a bigger stake between them.
In addition, it is being said that, to protect the investment of all the shareholders and extract long term value from the bank, the articles of the Bank PLC will somehow require “ethical” behaviour and have a body to try to ensure that happens. We’ll have to see, but that all looks rather fragile in a PLC with all its shares listed. It won’t stop passionate co-operators from moving their accounts to genuine mutuals and it remains to be seen how it plays with the wider customer base.
One interesting immediate legal question is whether a PLC in which the co-operative movement has only a 30% stake can use the word “Co-operative” in its name for trading purposes. That word is restricted in its use by company legislation to, as I understand it, those who are felt by Companies House to satisfy the FCA bona fide co-operative test. Since that focuses on member (not investor) control it is hard to see any justification for allowing the use of the word by a PLC 70% owned by investors and only 30% by the Co-operative Movement. That would drive a coach and horses through the protection of the co-operative name. But,anomalously, the word “co-op” is not protected in that way. So will we see a subtle name change……….??
I’ll do more detailed analysis when more information is available.
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