From adversity comes the chance to triumph. If there is one thing that doesn’t change it is human nature, and human nature overreacts. One moment we all pile on to the next big thing; the following moment, we are running in the opposite direction as fast as our little legs will carry us. That is why opportunity lurks in crisis.
When dotcoms crashed, the Internet went from being the greatest thing since sliced bread, to about as worthless as, well, bread gone stale. Yet in that atmosphere of electronic gloom, Google sowed the seeds for its future prosperity. According to Daniel Gross, author of the book “Pop! Why Bubbles Are Great for the Economy,” Google was able to lash together “hundreds of thousands of cheap servers.”
After the Russian crisis of 1998, the combined value of all Russian companies listed in Moscow fell to below the value of Sainsbury’s, yet in this environment of apparent no hope, the oligarchs were born.
In the wake of 9/11 shares in insurance companies went into freefall, but one shrewd British entrepreneur saw that as an opportunity. Armed with just £500,000 Clive Cowdery launched Resolution, which invested in various insurance companies, when shares were cheap, and then sold out to Pearl for £500bn last month.
And while the ink on his cheque was still drying, Mr Cowdery planned his next, and even bolder move.
Today, of course, it’s shares in banks which are in freefall, and nowhere is this more true than with the shares in buy-to-let specialist, Bradford and Bingley.
So, the plan now is to repeat the trick. He is still using a venture called Resolution (when he sold out to Pearl he kept the rights to the name), but this time he has got help from four big investors, and the plan is to actually control the resultant investments, and put in place a management team.
As you know, Bradford and Bingley, the former building society known for its men in bowler hats, is in trouble. It is apparently not quite in a Northern Rock type of trouble, but it is pretty bad all the same.
You may recall, the bank had planned a rights issue, a rights issue underwritten by Citigroup and UBS, designed to raise £400m. But then the bank revealed that write-downs had been much, much greater than originally anticipated, shares crashed to below the rights issue price, and instead of forcing the two underwriters to stump up the cash, revealed a new plan. The rights issue share price was lowered, more money was to be raised, but US private equity giant TPG was pumping in £179 million, and the rights issue itself would raise £258 million. But, and this is what got shareholders’ goat, TPG was acquiring shares at a price which was much lower than the price originally planned for the rights issue.
Okay, so that left shareholders less than pleased, but there wasn’t much they could do. They could spit feathers, but that was about it.
Then that changed. For Mr Cowdery, fresh from his coup in the insurance field, is planning a £400 million swoop on Bradford and Bingley. His backers are Standard Life, Legal & General Investment Management, M&G and Insight (a part of HBOS). Even before the bid was launched Mr Cowdery had a 2.9 per cent stake. The quartet of partners has around 14 per cent of the business.
They are pitching in at a higher share price than that being offered to TPG, but if the bid is successful, they will end up with a controlling stake in the bank.
Bradford and Bingley are not impressed. “The Board carefully considered this proposal and on June 22 informed Resolution that it could not recommend the current form of the proposal to shareholders,” said a statement.
But then, frankly, shareholders in the bank are not that impressed with its management.
If the bid is successful, then it appears this is just stage one. Media reports suggest Mr Cowdery and his backers have their sights set on around 15 companies to throw into the pot.
Unlike with TPG, Mr Cowdery has no track record in running banks, but that is okay, he can buy in a management team.
This is a bold move. If successful, he could put together a group of smaller, struggling banks, hit especially hard by the current financial turmoil. And when the recovery begins, he will be sitting pretty.
The deal also makes an interesting twist on the private equity story. His backers are really from the old school, investors holding a portfolio of shares in quoted companies. His rival in the bid, the original ‘Barbarians at the Gate,’ Texas Pacific. But he is applying private equity values, and could well pick up a tidy profit from the whole venture.
Watch how this one pans out, and then watch how the story of Mr Cowdery and his backers unfolds over the next few years. If it goes to plan, then in ten years’ time, this could well turn out to be the stuff business books and courses at business schools are made of.
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