What a profitable day for the Treasury. First, Tesco coughed up £585m, confessing its pandemic freebie on business rates had become impossible to justify. Then Morrisons, accurately reading the mood, volunteered £274m.
By the end of this week, when the penny drops in other boardrooms, one strongly suspects Rishi Sunak, the chancellor, will have received the thick end of £2bn without lifting a finger. The sum won’t make a serious dent in the £394m of public borrowing this year but, hey, every little helps.
The astonishing aspect is that Tesco’s board insisted only two months ago that it would be keeping the money. While some of us regarded that stance as disgraceful, it would be hard to say the directors were under severe pressure to perform a U-turn.
Ministers would have been entitled to lobby for the return of a few quid – indeed, perhaps had a duty to exert moral pressure. After all, the 12-month business rates holiday for retailers was primarily intended to help those stores forced to close their doors during lockdown. The supermarkets, of course, stayed open and punters queued round the block when they weren’t bombarding websites for home deliveries.
Tesco’s revenues in the UK rose 7.7% in the March to August period, the chain’s strongest performance in years. Yes, the group will also clock up hefty Covid costs this year (£725m, it says) in the form of sick pay, temporary staff cover and supplies of personal protective equipment, but such financial discomforts are mild compared with what’s happening in the worlds of pubs, restaurants, events and so on.
That realisation may have triggered guilty thoughts in Tesco’s boardroom. Certainly, one hopes the chairman, John Allan, understood that, while sitting on the rates relief, he couldn’t possibly opine loftily about big business’s duties to society while wearing his other hat of vice-president of the CBI.
Whatever the reason for the capitulation, it is welcome. Returning the money is, as Allan now says, “the right thing to do”. It is also, from a financial perspective, an easy thing for Tesco. The company is worth £22bn and shareholders will not have to forego a penny of declared dividends. Tesco’s share price merely adjusted for the cash return – a gentle fall of 2%.
The gesture will be more slightly more painful for the smaller Morrisons, but definition of “the right thing” should also apply to rivals. In fact, the most gratuitously underserved handout was received by B&M. The discount chain sells a few lines of food, so it qualified as an essential retailer and stayed open, but its shelves are also filled with toys, games, furniture, stationery and rugs. With most of its non-food competitors ruled offside, B&M had the freedom of the inessential pitch.
It showed in the numbers. Earlier this month, B&M reported a 30% improvement in like-for-like sales in a six-month period and a near-doubling of top-line profits to £296m. There was never a reason for Sunak to give B&M £38m-worth of relief on rates – in pub-land, his error must look obscene.
Tesco will win huge credit for moving first. Morrisons has claimed an honourable second. What’s everyone else waiting for? Limping in last is not the position to be. Hurry up.
GuardaWorld forced to dig deeper in its pursuit of G4S
GardaWorld of Canada still thinks G4S is “ex-growth and faces serious challenges”, but it’s willing to pay £3.68bn to own the UK security company, a big improvement on the £2.97bn offer that it has just spent five weeks claiming was “full and fair”.
Welcome to the zany world of mergers and acquisitions, a place where you should never trust a bidder’s word until the phrase “final offer” is uttered. GardaWorld has now arrived at that point. Its original 190p-a-share offer was risible, but 235p gets it in the game – G4S’s share price hasn’t been that high for two years.
As importantly, the bidder has reached agreement with G4S’s UK pension trustee on a £770m support package. One assumes the package is a belt-and-braces job because it needs to be: GardaWorld is backed by private equity firm BC Partners and intends to run with the usual nosebleed levels of debt.
California-based Allied Universal, the rival bidder, has a week to make its next move, and the stock market assumes it will trump GardaWorld’s terms – G4S’s share price closed on Wednesday at 246p. It looks increasingly likely that G4S will be bought by someone.