Overview: close call

Tip for the top: Jonathan Howell (pictured) could replace Colin Keogh

After a series of failed takeover discussions, Close Brothers’ chief
executive Colin Keogh has fallen out of favour with some of the firm’s biggest
shareholders and there are moves afoot to replace him with finance director
Jonathan Howell. Considering the merchant bank’s share price is sitting at an
almost five-year low of £5.85, rumours of an ousting are hardly surprising.

What’s happened

Cenkos and Landsbanki jointly launched a £9.50 a share offer for the FTSE 250
finance house back in November. Close rejected the offer, but negotiations got
under way after the consortium upped its bid to £10.25 a share. Talks broke down
in late January with Cenkos accusing senior management at Close of being
‘obstructive’.

Then private equity firm Blackstone and Japanese financial group Orix threw
their hats into the takeover ring, only to pull out in February, citing current
market conditions and disagreements over Close’s valuation. Interest from
India’s Tata also amounted to nothing and on February 29 Close said it was no
longer in discussions with anyone over a takeover.

In a statement released with its interim results, the group said: ‘no bidder
was able to deliver ‘a firm, fully financed, offer’. It also announced that
there were no plans to sell off or break up any parts of the group.

What’s going to happen

With shares falling with each new development, shareholders are predictably
unimpressed. According to The Sunday Times, a rebellion is mounting and at least
three of Close’s ten biggest shareholders have called for Keogh to be removed.
One proposal is that the recently appointed finance chief Jonathan Howell be
promoted to the top job. Howell joined Close just one month ago after 11 years
at the London Stock Exchange.

If shareholders get their way, Howell faces a number of challenges in
returning the bank to a state of health. The failed takeovers have taken their
toll on finances as well as on sentiment – Close spent about £5.5m on advisory
fees for the abortive deals. Pre-tax profits aren’t exactly a source of
inspiration either, with first half profits down 29%.

Howell will also have to take swift action to prevent the departure of key
senior staff members, many of whom would have received bonuses if potential
suitors had not been sent packing. The company recently launched an employee
incentive scheme but whether this will be enough to curtail defections remains
to be seen.

If the coup is successful, Howell is looking at one of the fastest promotions
from FD to CEO ever. If, on the other hand, the coup is unsuccessful, he may
find himself in a very precarious predicament indeed.

Being offside with the boss just one month into a new job is not an enviable
position for anyone, and when the dust settles, there may only be room for one
of them.