Friends Provident’s “thanks but no thanks” to Resolution’s £1.7bn takeover bid last month shone a spotlight on the structure of Clive Cowdery’s Guernsey-domiciled acquisition vehicle.
Although Friends Provident never mentioned Guernsey by name, it cited among a number of objections to the deal certain governance arrangements having to do Resolution’s structure that it said were “totally inappropriate in a public company context”.
For their part, Guernsey officials admitted that Cowdery’s company, which is typically described as an acquisition vehicle and likened by some to a private equity firm, was not regulated by the Guernsey Financial Services Commission because it was not structured as a conventional “collective investment scheme” nor did it qualify as a firm that provided “advice and undertaking other defined activities in relation to securities generally”.
However, Carl Rosumek, deputy director of Investment Business at the FSC, stressed that Guernsey’s regulatory regime “meets the standards set by the International Organisation of Securities Commissions, which sets standards for the regulation of investment business”, and thus suggested that FP’s concerns did not reflect on Guernsey or its governance standards so much as on Resolution for its choice of structure.
As for whether a comparable structure would be possible for a UK company, he said this was outside the remit of the Guernsey body to answer.
“I would suggest that you contact a professional in the UK with relevant knowledge of such matters,” he added.
Times: “tax haven”
Among the commentators who also found fault with the Resolution set-up was Times business editor John Waples, who focused not on the governance issue but on the Channel Island jurisdiction’s tax advantages. At one point he referred to Guernsey as an “island tax haven”, a term Guernsey officials have fought for years to challenge.
In being domiciled in Guernsey, Resolution was “out of step with these more chastened times”, Waples added.
The headline on the piece suggested that Cowdery’s "resolution" must be "to quit Guernsey”.
Some other reports of the FP rejection of Resolution’s offer, including one in the Daily Mail, noted that FP had its roots in a Yorkshire company founded 177 years ago with a mandate to provide financial services to poor Quaker families.
Resolution shareholders supportive
An external spokesman for Resolution said the company does “not see it as a Guernsey issue” and added: “Resolution raised £660m in December of last year, in a very difficult equity market, and it spent the time from September to December consulting with [its institutional shareholders] over how it should be structured.
“It came up with the Guernsey-domiciled structure that we now have, and our feedback from investors has been very supportive – which has been shown through the investments they have made in the company.
“Subsequent to that, the majority of the shareholders that we’ve spoken to have continued to be supportive of the structure.”
In a statement filed with the London Stock Exchange on 20 July, Friends Provident cited among its concerns about Resolution’s structure:
• what it said were "substantial management functions outsourced to a third party management company, Resolution Operations LLP";
• a "[lack of] representation on the main board of Resolution of the key members of the Resolution management team (who all currently sit within Resolution Operations LLP), reducing significantly any accountability to shareholders"; and
• "significant fees and preferential entitlements accruing to third party vehicles controlled by and for the sole benefit of the individuals represented by Resolution Operations LLP."
(A version of this story appears in the August issue of International Adviser magazine.)