The International Monetary Fund thinks big tech is too big. Or, more accurately, it would be worried about the effects on innovation and growth if US tech giants’ market power “were to continue to rise in the future”.
The IMF’s analysis is a long way from being a radical proposal to break up Amazon, Facebook and Google, as advanced by the US senator and presidential candidate Elizabeth Warren. The body didn’t even name any companies in the relevant chapter of its World Economic Outlook publication.
Yet even this tentative talk might encourage policymakers to take competition policy, as it applies to big tech, more seriously. When the IMF says there is a possibility that successful tech titans could seek to block potential rivals, most of us would say it’s already happened.
Google bought YouTube in 2006 when the video-sharing service was less than two years old. Facebook did much the same with Instagram in 2012, then bought WhatsApp in 2014. The industry already looks like an oligopoly.
Note that Mark Zuckerberg didn’t mention competition policy in his recent Washington Post essay that argued for “a more active role for governments and regulators”. The Facebook founder was talking about harmful content, election integrity, privacy and data portability – all areas where regulatory action might increase barriers to entry.
Zuckerberg, one can guess, would be more worried if the US’s ultra-permissive approach to tech takeovers became threatened. If the IMF helps to fuel that debate, that’s a good thing.
Bramson’s Barclays battle
It is the season for attempted boardroom coups and, after Julian Dunkerton’s success at Superdry, the camera will turn to weightier matters than a punch-up at a £400m retailer of hoodies and jackets.
Next in the spotlight is Barclays, where Edward Bramson, an activist agitator, wants to get himself on the board to tell the sleepy, overpaid current crew, as he might regard them, how to run the bank. “Make the investment banking division smaller” seems to be the gist of his thesis.
The trouble is, it is hard to know exactly what Bramson thinks. His Sherborne fund, in control of a 5.5% stake in Barclays, tabled the paperwork for a vote in early February and nothing resembling a manifesto has yet appeared. One assumes a document will be published soon, possibly next week, since the vote is on 2 May. But the tactic of lobbying fund managers only in private for the first two months of a campaign does not breed trust.
Barclays is not like Bramson’s past small-beer conquests such as fund manager F&C or Electra Private Equity. It is a large, regulated bank with 82,000 employees; about 25% of UK payment transactions go through its pipes every day. If you want to try to call the shots, your audience should be broader than a couple of dozen City suits.
As it is, Bramson has already alienated one backer. Aviva Investors, the third largest investor in Sherborne, has said it won’t vote its Barclays shares in his favour. Meanwhile, it has emerged that Sherborne is using a derivative “collar” to limit its losses should Barclays’ share price fall. That looks to be an obvious case of misalignment with other shareholders, as the bank has argued.
Parallels with Superdry don’t run very far – Dunkerton co-founded the business and his stake was his own. But Bramson could usefully borrow one approach: say what you’d do early and be happy to be questioned publicly on your record. Anything else deserves to lose votes.
AA recovery programme is slow going
How’s the AA getting along with its debt-reduction programme? The bald statistics at the roadside recovery firm look horrendous: net debt was £2.7bn at the end of January, versus top-line, pre-interest trading profits of £341m in the latest year. That’s leverage of eight times, against an ambition to achieve three to four times.
The better news for shareholders is that the AA finally stopped trying to drive on empty a year ago. The incoming chief executive, Simon Breakwell, ordered more long-term investment in the form of digital services, more staff, better IT and a beefier insurance offer.
The costs will weigh in the early years but, if all goes to plan, trading profits should re-emerge above £400m, at which point a few chunks can be taken out of debt.
The absurd borrowing levels were, of course, imposed under private equity ownership, before the AA’s flotation in 2014. One suspects Breakwell will get the leverage ratios into vaguely normal territory eventually, even if it takes half a decade. The moral of the tale, though, is old: when buying from private equity, look under the bonnet.
