The last lap of Andy Palmer’s reign as chief executive of Aston Martin was the cruellest. As he lost his job, the share price rose 28%. The market’s implied judgment was harsh but fair: a new driver was desperately needed to give credibility to Aston Martin’s latest pitch about corporate turnaround.
Palmer, said his fans, had done brilliant work in revitalising Aston Martin under private ownership but he would forever be remembered for one of the silliest pieces of flotation hype of recent times. “We don’t make cars, we make dreams,” he declared in September 2018.
It was an attempt to justify why a company overburdened with debt, and with a horrible history of going bust regularly, should be valued at £4bn. Reality arrived long before Covid-19. Palmer departs with the shares at 45p, even after Tuesday’s bounce, rather than the £19 at which new investors climbed aboard.
Charitable souls will say his job was impossible because the controlling shareholders of Aston Martin at the time – a Kuwaiti fund and the Italian private equity house Investindustrial – insisted on pushing the car firm on to the public market with all that debt. The analysis is probably correct, but chief executives don’t have to offer hostages to fortune or compare their businesses to the incomparable (in investment terms) Ferrari.
Lawrence Stroll, the Canadian billionaire who heads the consortium that is now Aston Martin’s biggest shareholder, has started well. He’s changed half the board and his pick as new chief executive is Tobias Moers, who arrives with a stellar reputation from AMG, Mercedes-Benz’s performance car business.
Doubts about the company’s finances remain, it should be said. Even after a £171m capital injection from Stroll’s consortium, plus the proceeds of a £353m rights issue, Aston Martin still looks stretched given £614m of net debt and a recession. But at least one can see some long-term thinking, as opposed to dreamy optimism, in the boardroom.
Now we get down to the tricky part of the Treasury’s business-support efforts: what to do about large and important businesses that are too indebted to be thrown a loan under one of the established schemes?
It is, for example, hard to imagine that the government can ignore cries of pain from the likes of Jaguar Land Rover, a firm with 40,000 employees in the UK but one that is already close to its borrowing limit. Intervention of some form seems inevitable. And, if JLR’s finances are so stretched that a plain-vanilla bridging loan is impossible, that will mean injecting equity in some form.
The Treasury – at least for now – will only admit that it will consider support on a “last resort” basis in “exceptional circumstances”, which means companies whose failure would “disproportionately harm the economy”.
The defensive tone around Project Birch, as it is known, is perhaps not surprising. Taking equity stakes in companies, or even granting loans that convert into equity, would be a radical step that would revive memories of 2008-09 and the banking crash. The Treasury’s instinct will be to stay away as far as possible from anything that smacks of semi-nationalisation.
Yet the chancellor, Rishi Sunak, must surely also know that today’s crisis is worse than the 2008-09 version. Pragmatism ought to be the guiding principle. Germany and France, you can bet, would not hesitate on their own patches to save their equivalent of JLR by owning a slice of it.
The important thing is to ensure value for taxpayers. In some cases that will mean full-fat equity and a seat on the board when alternatives don’t work. Sunak should not be afraid to go there.
Brigadier, the outfit buying Moss Bros, has given up the fight. Last week it seemed minded to dispute the Takeover Panel’s ruling that there were no grounds on which to wriggle out of the £22.6m purchase of the suit-hire retailer. Now Brigadier will accept the judgment. “We are pleased to be consummating our acquisition of Moss Bros,” said the director Menoshi Shina.
This is wise for two reasons. First, the panel almost always wins. Second, the costs of this tiny transaction have already reached about £2.5m – £1.5m on Moss Bros’ side, and roughly £1m for Brigadier itself. Call it 11% of the value of deal itself – that’s quite enough enrichment of advisers and lawyers.