I shall write to the chairman of MMO2 and make an offer for his house at a price of my choosing. Unless he replies saying "no, thanks", I shall take possession

The mobile phone company with the O2 brand - MMO2 - wants to cull its army of small investors. Separated out of British Telecom and given its own listing, it has more than 1.6 million shareholders. It plans to offer to buy out the tiniest on sweetened terms. Nothing wrong with that. Shareholder registers are costly to run. Small parcels of shares are uneconomic - both for the shareholder and the company. If both agree to part company, fine.

But MMO2 isn't taking that route. It is compulsorily buying out shareholders if they fail to respond to a letter offering them a price for their shares. Failure to respond is deemed to be an acceptance. If the postman happens to mess up, or the paperwork looks too daunting, or the shareholder happens to be away - tough. It's a cavalier attitude for management to take to its own shareholders and to private property, though MMO2 assures me it has taken counsel's opinion and it is legal.

Perhaps I should write to the MMO2 chairman, David Arculus, and offer to buy his charming home at a price of my choosing. Unless he reads my letter, and returns the form saying "no thanks" with the correct box ticked, I intend to take possession.

The MMO2 move is seen as a potential precedent for other companies with large shareholder bases - mainly demutualised and privatised companies. A large army of shareholders, once seen as a potential boon for sales, public relations, political clout and general management status, is now often viewed as a costly nuisance.

The high watermark for popular capitalism is long gone. In 1997, when Norwich Union, Woolwich and Halifax all came to the stock market, there were 15 million direct shareholders in Britain. Today, the figure is about 11 million and dwindling. The planned demutualisation of Standard Life - with three million policyholders - will reverse the trend next year, but only temporarily and briefly.

ProShare, the lobby group set up partly with government money to promote wider share ownership, is lamenting the decline. Shares not only give people a share of the capitalist spoils, they also bring a human touch to an increasingly institution-bound business world.

But ProShare is steering well clear of the MMO2 affair. Not surprisingly, because MMO2 is one of its sponsors.

Zombie funds are suddenly the most fashionable asset in the Square Mile. No capitalist can be taken wholly seriously unless he's sniffing about these curious beasts. Hugh Osmond, the former pizza entrepreneur, loves them. So does the Fleming family (of banking and James Bond fame).

Zombie funds are life assurance funds that are closed to new business. They often boast millions of small policyholders and tens of billions of pounds of assets. They are the living dead of the City, destined to wither away over 40 or 50 years and finally peg out when the very last policyholder expires.

Meantime, they are reckoned to be potentially very profitable. At present, both Osmond and the Flemings are fighting over the same funds - the Pearl, NPI and London Life. By gearing them up, squeezing out costs or embarking on better investment strategies, they hope to make money for themselves.

The question is whether they may be taking on risks to the detriment of policyholders. Unfortunately, the funds' accounts and procedures are so opaque that it difficult to know what is really going on. It is crucial that the Financial Services Authority, which is charged with looking after policyholders' interests, subjects all bids to the most intense scrutiny.

Longbridge is one of those names that evokes fear and trembling among MPs across the West Midlands. The MG Rover car plant might employ only 6,000 or so people these days, but it remains symbolic of Birmingham's industrial health.

Hence the intense interest in the putative rescue deal from Shanghai Automotive Industry Corporation.

Silence from Shanghai had been interpreted as meaning that the Chinese were cooling on a deal. Speculation about heavy job losses has been rife.

So the corporation's recent announcement that it was "in the advanced stages of detailed negotiations on a joint venture that will safeguard and secure car manufacturing at Longbridge" was seized on with delight by Rover and its friends.

Anyone experienced in dealings with China should be extremely sceptical, however. After all, this is the country whose business leaders and politicians have made the memorandum of understanding and other business communiques into a high art form - warm words, cuddly intentions, bold ambitions - that signifies absolutely nothing. It's the signed contract that matters.

Patrick Hosking is investment editor of the Times

Post your comment

Please note: you will need to login or register before you can comment on the website