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Friday, 11 September 2009

Only the crumbliest, flakiest chocolate

Most corporate finance teams in investment banks have periodic, usually weekly, meetings where they discuss the deals in progress, and more generally prospects and targets. In many organisations it is a time for posturing and discrete bragging in front of the whole group with a view to year end bonuses, but it is also time when the group management can spot the weaker members who may not have performed at the end of the year.

Apart from the complete no-hopers who never look like closing a deal despite frantic marketing and are gone at the end of the year, there are two categories of loser that are easy to spot. The first is the "Chamberlain", who turns up with a piece of white paper, a mandate. The trouble is that the mandate still requires board approval, which never happens. Or the salesman says "We have an exclusive. I have a written agreement from the CFO that the client is not going to do this deal with anyone else." The trouble is, he is not going to do the deal at all. If the client is in Munich, we all get to laugh.

The second type is the "flake" who says he has a verbal mandate, which of course is not worth the paper it is not written on. The flake will present a key sale as a done deal, but somehow it never closes. Nevertheless, by the time the customer's name begins to look a little stale in the transaction pipeline, the flake has come up with another near sale which he hopes will erase the memory of the last.

I am reminded of these characters by the news that Lord Mandelson says he is confident that jobs at Vauxhall’s UK plants will be safe after the business has been sold to Magna International and Sberbank.

Poking the substance of the deal we find that Magna has said that it will not close any of the 4 Opel factories in Germany as part of an agreement with the German government, but there is no such agreement with the British government over the Vauxhall plants at Ellesmere Port and Luton and the 5,000 employees at thoise plants.

Remember that the deal is actually an agreement to sell 55% of the shares in Opel and Vauxhall to Magna and their Russian firends, by GM with £4 billion of financial support from the German government. The UK government doesn't actually have any such agreement and the deal between GM and Magna does not depend on any specific agreement with UK government. It does have to be ratified by the Opel Trust, made up of representatives from GM, the German federal government and the German states that contain Opel plants, but I don't see any of those groups on Lord Mandelson's business card.

Not to worry says Lord Mandelson, because he has had assurances from Magna and its chief executive that it was committed to both plants. Better than that he has had four meetings with the chief executive of Magna.

At which point, I would be scribbling "Galaxy Ripple?" in the margin of my copy of the deal meeting agends, before piping up with "Do we have a written agreement on this deal?"

Err, no. "The government will now discuss our share of the funding.” says the snake-oil salesman.

I wouldn't blow your year end bonus just yet.

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