Tempus: Mecca's faith adds to Grand Met's dilemma
In a perfect world a board of directors' responsibilities to its shareholders will not conflict with its responsibilities to its employees. As Grand Metropolitan has discovered, however, in its attempts to divest itself of its Mecca Leisure business, this is not a perfect world.
The news that The Rank Organisation has come in with an offer which tops the Mecca management's own buy-out terms has posed Grand Met with something of a moral and financial dilemma.
Had Rank's pounds 100 million approach been much higher than the management's offer - on the grounds that this is therefore best for the shareholders - the decision for Grand Met would have been quite straightforward.
However, it now transpires that the management buy-out itself valued Mecca at pounds 90 million. Some pounds 50 million of debt has already been underwritten with the further pounds 40 million to be raised by the placing of equity with institutions eager to have the opportunity to participate in a potential First Leisure-style success story.
In simple cash terms, there is still a difference but that is soon eroded when other factors are considered. Rank would not take on some of the smaller loss-making operations which the management had agreed to do. This reduces the value of their offer by say pounds 3 million.
On top of that, Grand Met would be obliged to give warranties to Rank far in excess of those to the management, which would leave the actual cash value of the two bids almost identical.
Enter now the moral dimension. The only way that Rank can make the investment in Mecca pay is to strip out large chunks of the head office and regional management. Perhaps 200 jobs could be lost which would otherwise have been saved by the management buyout.
There must be value, no matter how intangible, which must attach to the improvement in staff moral and goodwill which would be generated if those jobs were secured. Grand Met does have some responsibility to its employees.
It is a difficult question for Grand Met to resolve. For the time being, the company has gone to ground although Rank now appears to be the favoured choice. Perhaps its offer has some other attractions. The payment package may, for instance, include an element of assets, perhaps the foreign holiday operations.