The clock’s ticking for Smiths Group to shape its destiny, Big Four accountancy firms’ flaws and Paul Pester’s parting mistake
The clock is ticking for Andy Reynolds Smith, chief executive of the industrial conglomerate Smiths Group.
Talks about a combination of Smiths Medical, which manufactures devices ranging from tracheostomy tubes to chest drainage catheters, with US-listed ICU Medical have been ongoing for the best part of four months.
When Reynolds Smith presents the company’s annual results later this month, he either needs to have the outline of a deal to show off, or to walk away.
Discussions with ICU have been far from straightforward.
A series of proposals has been batted back and forth with all the vigour you expect of a Grand Slam tennis match.
Smiths is said to be keen to retain exposure to the potential upside to a combination of the two businesses, which if merged would create a £7.5bn transatlantic powerhouse.
Sources say that as well as a meaningful stake, it would also want to retain management control of the new company.
A month ago, the talks were on the brink of falling apart, since when ICU has tabled a cash-and-shares offer for Smiths Medical worth up to £2.8bn.
That was rejected, leaving investors with little idea of whether any form of agreement is plausible.
Meanwhile, a separate offer from Baxter International, another US healthcare group, was rejected, presumably on the grounds that Smiths’ board has little use for the money other than handing it back to shareholders.
The FTSE-100 company’s stock has barely moved in the last year, at a time when many industrial rivals have seen robust uplifts in their valuations.
That might well worry Reynolds Smith, with rumours of activists continuing to stalk the company.
It’s hard to criticise Smiths’ board for failing to evaluate the options relating to a potential break-up, but the absence of firm decision-making (either to pursue the medical deal or walk away) suggests that some external impetus would be welcomed by other investors.
Big Four flaws
Take your pick. The bewildering menu of options confronting competition regulators as they decide whether to mount a full-scale probe of the audit market presents no obvious solution to the industry’s deepening reputational crisis.
So the idea of an early-warning system to flag clients’ looming financial problems, raised this week, may seem to possess the virtue of common sense.
It’s hard to see it working in practice, though. At least one Big Four auditor is said to have deep reservations on the grounds that such a framework would risk breaching confidentiality obligations. It would also leave the profession exposed to even more trenchant criticism in situations where a rapid corporate collapse occurs without alarm bells having been rung.
Back to the drawing board.
Read more: City watchdog chair blasts Big Four for poor quality audits
Pester’s parting mistake
Paul Pester’s exit from TSB was the most inevitable boardroom event of the year once it became clear that the bank was struggling to fix the technology catastrophe which hit in April.
The announcement of his departure was bizarre, though.
For a bank chief who has worked hard to convince stakeholders that his company was different to the rest of the industry, Pester’s decision not to acknowledge this year’s crisis showed poor judgement.
And while he is legally entitled to a payoff in line with his contract, he is unwise to take it.
When he pops up in another board seat, as he surely will, any claim he has to being part of a company that elevates itself to a loftier ethical pedestal than its peers will have a hollow ring.
Read more: Paul Pester steps down as TSB boss amid ongoing IT issues