Take-over Bid
Page 54
If you've noticed an error in this article please click here to report it so we can fix it.
REGARDED as a business transaction, disposal cannot fail to result in a good bargain for the British. Transport Commission. The unfortunate and helpless victims of the transport levy knew from the beginning that they were to be sacrificed, but they still feel sore when they learn at last from the Minister of Transport that a total of perhaps Ulm. will be required of them to ensure that the Commission will not suffer, whoever else does.
From their point of view, disposal is rather like what has become known as a take-over bid, in that a price is offered far higher than the apparent value. The difference is that the extra money comes involuntarily from people who will not benefit directly from the financial and economic improvements that the transaction is supposed to bring.
Through the medium of the Transport Act, 1953, the Government have agreed to pay far more than British Road Services would fetch in the open market. From the money received from disposal, plus the levy, a number of items has to be met. Some of them may be comparatively small. There are special expenses incurred by the Commission in connection with the disposal. The Commission will be allowed compensation for payments made or liabilities incurred to secure rights that cannot be enjoyed as a result Of the sale of road haulage assets. The salaries and expenses of the Disposal Board have to be paid, and the Commission must be reimbursed for any compensation paid for loss of employment.
The cost of other and probably larger items may be fixed a little more precisely. According to the Disposal Board, the value of the assets to be sold is £45.6m., made up of £14.8m. for land and premises, £8.9m. for plant, equipment and stores, and £21.9m. for vehicles, after deduction of accumulative depreciation.
Payment for Goodwill Estimated goodwill of B.R.S., according to the latest report of the Commission, is £32,589,926. Payment will be made to the Commission for whatever portion of this goodwill relates to the assets that are sold. As the goodwill represents compensation for all the 41,000 acquired vehicles, and as 32,441 are to be offered for sale, an estimate of £25m. may be reasonable for what the Commission are to get back.
The cost of some of the B.R.S. assets has been charged by the Commission to revenue. It is clear that the disposal of these assets will involve the Commission in a loss, compensation for which has been fixed at £2m. In accordance with Section 14 of the Act, a further sum of £Im. will be paid to the Commission to represent the "loss from disturbance suffered by the Commission while the assets of the existing road haulage undertaking are being disposed of."
When these two items are added to the goodwill and the value of the assets, a total is reached of £73.6m., or approximately £75m. when every item is taken into account. The Minister of Transport is of the opinion that the gap the levy is destined to fill will be £20m., plus the £1m. sweetener to the Commission, so that, if my calculations are correct, he exiiects the sale of road haulage assets to bring in something like £54m.
c12 This will at least cover the value of the assets but less than half the goodwill, not more than £10m. in fact. The Commission and the Board are aiming to get the best possible prices for the units they sell, and have been criticized for refusing so many offers, so that. in spite of what may be said on the other side, the price finally reached may be approximately what the undertaking is really worth. Before reaching a decision on this, it is necessary to have some idea of the true figure for -goodwill.
The item of goodwill in the balance sheet of the Commission covers a: number of things. Perhaps the main item is the compensation payable for cessation of business and severance in respect of road haulage undertakings compulsorily acquired. This was not less than twice nor more than five times the average net annual profit in a period of three financial years; or. in the case of severance, £70 per ton of carrying capacity. Goodwill is also included in the balance sheet in respect of undertakings acquired by agreement or transferred from vested undertakings, and there is an item for expenses in connection with acquisition.
Operators' Complaints Operators have complained that B.R.S. have dissipated their goodwill, and that it has evaporated. This may be going too far, but it is true that the goodwill at present is unlikely to be exactly equivalent to what was paid in compensation over and above the value of assets. On such a basis B.R.S. themselves would not come out particularly well. Their net revenue for the past three years was £3.2m. in 1951, £1.6m. in 1952 and £8.9m. in 1953.
The total of £13.7m. means an annual average of 14.6m., from which at least £2.1m. must be deducted to represent the B.R.S. proportion of the Commission's central charges. The residue of £2.5m. needs the fairly high multiplier of four to bring it to the figure that the bidders apparently think represents an accurate figure for goodwill.
Other things must be taken into consideration. The virtual monopoly of traffic beyond a radius of 25 miles was given to the Commission for nothing by the Transport Act, 1947. They did not have to pay for it. The 1953 Act .abolishes the monopoly as from the end of this year. The gap of 120m. may represent the value of the monopoly to the Commission.
That at least is the philosophical view for the trader and the haulier, who are paying the levy. It is an imposition impossible to defend on logical grounds. The value of B.R.S., as of anything else, is what it will fetch now and not what was paid for it three or four years ago. On the other hand, the item of goodwill is in the Commission's balance sheet and has been for the past three years.
There must also be a corresponding item representing the compensation for goodwill on which the Commission are paying interest. No scheme for disposal could ignore the problem of liquidating this item. The only possible methods were a subsidy or a levy on a certain section of the community. The subsidy may have been fairer, but would have seemed too much like putting money into the pockets of the buyers of transport units.