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The M + B story



Daily Telegraph interview with Simon Laffin
Observer interview
Daily Telegraph article written by Simon Laffin


Appointment of ‘the four Directors’

Since October 2008, Mitchells & Butlers' two largest shareholders have been Piedmont Inc, an investment vehicle whose ultimate owner is Joe Lewis, then with 22.8% of the equity of the Company, and Elpida Group Ltd ('Elpida'), owned by John Magnier and JP McManus, which held 17.6%.

In April 2009, Leo Fund, owning at the time 5.6% of the shares, requested that the Board appoint Denis Jackson and Ray MacSharry as new independent Directors. Leo Fund subsequently informed the Board on various occasions that unless the Board agreed to its request it would requisition a shareholders' meeting. On 24 June 2009 Leo Fund told the Company it had prepared a requisition to convene an EGM to propose a resolution to appoint Mr Jackson and Mr MacSharry as Directors. Representatives of Leo Fund said they believed that Elpida and Piedmont Inc, who together with Leo Fund held over 40% of the Company's shares at the time, would vote in favour of that resolution. The Board therefore felt that it had little choice but to appoint them as Directors, but required Mr Jackson and Mr MacSharry to confirm their independence in writing, which they subsequently did. They were therefore appointed to the Board on 28 August 2009.

After Leo Fund's request, Piedmont Inc implemented its right to appoint up to two representative non independent Directors to the Board and therefore on 16 July 2009, Richard McGuire was appointed and on 18 November 2009 Douglas E McMahon was also so appointed.

Why the four Directors were removed

The Board believed that it was imperative that both collectively and individually Directors should represent and protect the interest of all shareholders. However, during November 2009 a number of concerning events took place:-

15 November 2009 - Chairman Appointment

Richard McGuire, a Director nominated by Piedmont Inc, informed the Board on 15 November 2009 at the final stage of the recruitment process, despite having been involved from the outset, that Piedmont Inc would not support the appointment of any of the three high quality independent candidates short listed for Company Chairman.

17 November - Position of the Senior Independent Director

On 17 November, Mr McGuire informed Simon Laffin, the then Senior Independent Director that "a small number of large shareholders" would vote against his re-election at the AGM. Mr McGuire said that he thought it better in fact if Mr Laffin did not stand at all. This conversation was subsequently confirmed in a telephone call that same day between Mr McGuire and the then Chairman, Drummond Hall. At that point, the majority of the Board felt that the role of the Senior Independent Director was being improperly influenced by Piedmont Inc and its representative on the Board.

Conduct on the Evening of 25 November 2009

During their appointment it was notable that the four Directors appeared to have a consistent view on a variety of business issues and that these views differed from that of the rest of the Board. It is not unusual, in the normal business of a Board, to have differences of opinion between Directors on matters being reviewed. On 25 November (the day before the Final Results were to be published), Mr McGuire decided to withdraw his responsibility statement (effectively a letter to the Auditors from each Director confirming that all known facts had been disclosed in respect of matters in the Accounts), despite very clear advice from the Company's Auditors and other advisers on the Accounts. This was followed by Mr Jackson withdrawing his responsibility statement, stating that if Mr McGuire did not reinstate his responsibility statement then neither would he. Mr MacSharry then also stated that unless agreement could be reached with Mr McGuire then he would also withdraw his responsibility statement. Finally Mr McMahon, who had not at that point signed a responsibility statement, also made it clear that he would not be signing it until Mr McGuire had reinstated his. Just before midnight that evening, Mr McGuire then reinstated his responsibility statement, an action that was then followed by Mr Jackson, Mr MacSharry and Mr McMahon. The Accounts were then duly published without any reservations or qualification.

Discussion on 27 November 2009

On 27 November, the Board made a further attempt to find an accommodation with the Company's largest shareholder. Adam Fowle, the then CEO, spoke directly to Joe Lewis at some length that afternoon. It became clear during this phone call that agreement could not be reached with Mr Lewis over the appointment of an independent Chairman.

Response by the Board

Following increasing press speculation and market rumour, the Board therefore felt that it had no alternative, and was strongly advised by all its advisers, that it had to draw shareholders' attention as soon as practicable to the increasingly difficult relationship between the Board and Piedmont Inc's representative. It was felt by a majority of the Board that the actions of these four individual Directors indicated that they appeared not to be exercising judgment independently of each other, in the interests of all shareholders. Therefore it was concluded that it was becoming extremely difficult for the Board to operate in the interests of all shareholders and that furthermore, the Executive Directors were being distracted from focusing on driving the operational outperformance of the Company for the best prospects of success of the Company.

The Executive Directors and the other Non-Executive Directors also considered that it was important to maintain a Board with a majority of independent Directors, who could ensure that the business was run efficiently for the benefit of all shareholders.

It was known to the Board that Sara Weller was intending to retire at the January 2010 AGM, that Mr Hall was also shortly stepping down from the Board, and that Mr Laffin had been threatened with being voted off at the AGM. In addition, Mr Bates would also be standing for re-election at the same meeting. It had not been possible to recruit and appoint replacement new Non-Executive Directors in the last few months, particularly as Piedmont Inc's representative had been reluctant to allow progress on this. This threatened to leave the Board post the AGM with only two independent Directors (Sir Tim Lankester and Antony Bates), two Executive Directors and the other four Directors.

The Board therefore decided, in its duty to have a fully functioning independent Board for all shareholders, that it had to remove the four Directors. It also decided to ask Simon Laffin to become Chairman as he had the skills and experience to lead the Board through this difficult time.

The advice from the company's advisers was unequivocal that following increasing press speculation and market rumour the Board had no alternative but to explain publically what had happened. Board members were further advised that it was their obligation as directors of a public company to bring its concerns to the attention of the Takeover Panel. The Panel reported in January 2010, and believed that it had found insufficient evidence that a concert party was in operation before 15 October. It therefore ruled that none existed during this time.

Piedmont Inc’s response to the Board’s action was to propose four different directors for election at the January 2010 AGM. This list included Simon Burke, who had been a short-listed candidate for the Chairman role, and John Lovering. It also proposed a resolution to remove Drummond Hall from the Board, and made it clear that they wanted one of the four, John Lovering, to be made Chairman and for Simon Laffin to stand down as Chairman. Furthemore, it indicated that it might well vote against the reappointment of both Tony Bates and Simon Laffin.

Piedmont later asserted its right to appoint a second representative director, and Ron Robson duly joined the Board on 22 January 2010.

The Board’s concern was that one 23% shareholder was seeking to determine the composition, not only of the Board, but to appoint a new Chairman and to remove directors at whom Piedmont had taken offence. This degree of control was able to be exercised only because Piedmont appeared able to command a consistent group of other shareholders’ support. Whatever the qualities and independence of the new directors, this was too much control being exercised by one set of shareholders.

The Board initiated attempts to find a compromise with Piedmont. It suggested parity on the Board between existing directors and Piedmont Inc’s nominees, ie an equal number on each side. Simon Laffin also offered to stand down as Chairman, and to support Piedmont’s choice of Chairman, John Lovering. In making this substantial compromise, the Board consulted leading institutional shareholders and representative bodies such as the Association of British Insurers, the ABI. They supported the directors’ approach, saying that the Board had gone to the absolute limit in making concessions on good corporate governance. As one put it rather forcefully; “Thus far, but not an inch more”.

Piedmont rejected this compromise. As a result, the Board published its recommendations on how to vote, including a recommendation to vote in favour of Mr Lovering and Mr Burke as new independent directors. The Association of British Insurers, the UK’s leading representative body for institutional investors, as well as the National Association of Pension Funds and others such as PIRC, either supported the Board’s recommendations on how to vote or in some cases argued that the Board had gone too far in conciliating Piedmont.

On 21 January 2010, the Board presented to the City its strategy for Mitchells & Butlers, showing the intention to focus on eating out rather than pure drinking, with significant growth opportunities in the casual eating out markets, significant efficiency gains to be achieved and a renewed focus on its core opportunity brands.

Piedmont did not offer a new or different strategy for the Company. Instead Piedmont said it would conduct a “60 day review” and seek to “unlock value”.
Lovering later presented such a strategy review, which turned out surprisingly similar to the previous board's strategy.

Paul Abberley, Chief Executive of Aviva Investors London, commented;

"As long-term shareholders in Mitchells & Butlers plc, Aviva Investors has been supportive of the Board's approach to addressing the issues raised by Piedmont and its actions, and in seeking a compromise solution that reflects the interests of all shareholders. The Board's efforts to try and achieve such a compromise have been greatly appreciated.
"It is clearly disappointing that, despite the disruption that had already been caused, Piedmont and its associates have persisted in trying to exert their control over the composition of the board and have not agreed to any substantive compromise. This latest approach to doing that, and the absence of a clear case for it, is a real concern for other minority shareholders. It should come as no surprise therefore that we continue to support the Board and will not support the protagonists at the forthcoming AGM.
"Whatever the outcome of tomorrow's AGM, we are clear that - individually and collectively - all board members need to be seen to continue to act fairly and in the interests of all shareholders."

Annual General Meeting January 28 2010

The AGM took place in a crowded hall in Birmingham, with an audience sympathetic to the Board. Elpida made a lengthy statement, focusing on events several years previously, which was met with stony silence. Piedmont declined to explain itself. There was a very high voting turnout of over 80% (around 335 million shares). Piedmont, Elpida and six other shareholders together are believed to own around 213 million shares.
Total votes cast against the re-election of Simon Laffin were 214 million shares.This showed that an overwhelming majority of other voting individual and institutional shareholders, were in favour of the Board’s stance. However Simon Laffin was not re-elected to the Board, due to the bloc vote.

In a statement, the departing directors said;

“We would like to thank all of the many thousands of shareholders, large and small, who have supported the Board's position. We wish the new Board well and trust that it will be allowed to continue the work already in hand to strengthen further this great business"

The new Chairman, John Lovering, wrote to Simon Laffin with the following;

"I am sorry that the M&B saga got so messy. You emerge from it with dignity and no one who knows you doubts that you did your best in a difficult situation."

Peter Montagnon, Director of Investment Affairs at the Association of British Insurers, commented;

Our members accept the result, but they remain extremely uncomfortable with the process which has enabled a minority shareholder to determine the composition of the board without paying a premium for control. There are important issues of principle here which we will analyse carefully and may take up with the relevant authorities”.

Since this date, the new Board continued to implement the strategy laid down by the previous board in January 2010. The new Board has however removed the original strategy presentation from its website and asserted that it had developed it itself in its March 2010 strategy.

Postscript 1: "Groundhog Day"

After just a year in the job, Chairman John Lovering resigned, apparently frustrated by the shareholders but satisfied that he had done what he was brought in to do. On 24 January 2011, the company announced that;

"The Non-Executive Directors, under the leadership of Simon Burke, the Senior Independent Director, have commenced a process to identify and appoint a new Chairman. "

Less than three weeks later, on 11 February, the Board announced that they were appointing Burke as Chairman with immediate effect. All the non-executive directors were nominees, or representatives, of Joe Lewis's investment vehicle, Piedmont.

A few weeks later, on 16 March, Adam Fowle, the CEO announced his departure. Adam Fowle was a very impressive and honourable CEO, who has delivered a very strong performance since his appointment. He was replaced by Jeremy Blood on an interim basis. Jeremy Blood was one of the four non-executives nominated by Piedmont in December 2009.

Postscript 2: "Groundhog Day"....all over again

After just a few months in the job, Chairman Simon Burke also resigned, with no reason being stated. He has been replaced by Bob Ivell. Ron Robson, a shareholder representative of Joe Lewis, has been made deputy chairman. The board therefore consisted of 2 Lewis-representative directors (one of whom is deputy chairman), 1 Lewis-nominated director (interim CEO), the CFO and the Chairman.

August 2011: Piedmont approaches M&B about a possible offer

"On 27 August 2011, Piedmont made an initial approach to Mitchells & Butlers to make an offer for the Company at 224 pence per share, a nil premium to the closing price of the Company's shares on 26 August 2011 (the "Initial Approach"). At such time, the Company's shares were trading at the lowest level since 25 March 2009 and at a 38% discount to the highest trading level during this period of 361 pence on 6 January 2011. The Initial Approach consisted of a cash offer with an alternative for Mitchells & Butlers shareholders to elect to receive shares in a newly formed unlisted entity controlled by Piedmont.
" ( M&B RNS announcement 13.09.2011)

According to one newspaper;
"The three strong group of independent directors welcomed the idea of a takeover but rebuffed the Bahamas billionaire's offer after discovering the level at which it would be pitched. " ( The Telegraph , 17 September 2011).

Another shareholder was more forthright.
"David Cumming, head of UK equities at Standard Life Investments, said: "Mitchells & Butlers has lost four chairmen in the past 18 months and it is clear that the influence of Piedmont has impeded the board from acting in the interests of all shareholders. Piedmont has now exploited this instability with a wholly unsatisfactory offer for the company. A more robust board would never have allowed this situation to occur. In summary this offer is insulting to all other shareholders. The business is worth substantially more than the terms proposed." "(Quoted in the Guardian 13.09.2011)

One newspaper queried some of the backgrounds of the 'independent directors';

"Jeremy Blood, the caretaker chief executive of Mitchells & Butlers, was recruited because he was an old contact of a senior figure in the investment empire of Joe Lewis, the pub group's largest shareholder, the Guardian has learned...In July, the Guardian revealed past business ties between M&B chairman Bob Ivell and Elpida after M&B had declared him to be "independent". Following that report, M&B amended its website biography for Ivell, acknowledging he had spent two years as deputy chairman of Next Generation racquets clubs when it was owned by investors including McManus and Magnier." The newspaper quoted Bood as saying earlier that; "I did not know any of the major shareholders before I joined." However it went on; "In fact, Blood is now understood to concede privately that he did meet both McGuire and Lewis before being put forward as an independent director. It is claimed Blood had wanted to secure investment from Lewis for a pub business, but the approach came to nothing." ( Guardian 15.09.2011)

The Sunday Times discovered that in 2010;
"the (Takeover) panel had indeed uncovered intriguing evidence about some of the shareholders the old M&B board had found so troublesome. Some investors had apparently bought shares through a common vehicle. The panel said that no rule had been broken, but the shareholders would be deemed to be acting in concert if they did so in the future." The newspaper also reported that the Panel has started to ask questions about the current approach. (Sunday Times 18.09.2011)

This 'offer' was later withdrawn, and Jeremy Blood removed as CEO. The Board now consists of a Chairman (Bob Ivell), Chief Executive, and Finance Director, with a deputy chairman and non-executive director both nominated by Piedmont (Joe Lewis's investment vehicle) and a further non-executive nominated by Elpida.

Latest update

21 March 2012 - Eddie Irwin is appointed as a representative director of Elipida, noting that: "
Mr. Irwin is a representative of Elpida Limited, a significant shareholder in Mitchells & Butlers and is Finance Director of Coolmore, a leading thoroughbred bloodstock breeder with operations in Ireland, the USA and Australia... Bob Ivell said: '...Elpida is a supportive shareholder and we are confident that having Mr. Irwin on the Board will be both positive and constructive.. ' "

10 September 2012 - Alistair Darby, COO of Marstons plc, was appointed as CEO.

21 September 2012 - Richard McGuire (see above) was appointed as an
alternate director to one of Piedmont's representative directors, thus returning to the board in an unusual manner. The Company Secretary resigned on the same day.

22 March 2013 - In a stark one line announcement, the board announces;

Mitchells & Butlers plc announces that Richard McGuire has ceased to be the alternate director of Douglas McMahon with effect from 21 March 2013."

22 April 2013 - M&B finally finds two independent non-executives willing to join the Board, Ms Imelda Walsh and Mr Colin Rutherford.

This account is drawn from RNS announcements issued by Mitchells & Butlers and newspaper reports as quoted.

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