Werner Seifert book review: A comic-book tale of good versus evil
After his unseating by hedge funds, Werner Seifert, former chief executive of Deutsche Börse, thinks the search for alpha will destroy capitalism. Euromoney reviews his new book, published yesterday (3 April) in Germany.
“Fly home buddy, I work alone,” Mr Incredible tells Incrediboy at the beginning of Disney/Pixar’s film, The Incredibles. Incrediboy, who has no superpowers but lots of ambition, has his offer of help rebuffed by his idol during a robbery by a notorious French thief. The rejection leaves Incrediboy with a burning desire for revenge, though Mr Incredible and family ultimately survive his dastardly schemes to deliver a happy ending. Werner Seifert’s new book, Invasion of the Locusts, is evocative of this episode, with himself cast as Mr. Incredible and Chris Hohn, of hedge fund TCI, as Incrediboy. The book is the story of their epic struggle for power over the future of the Deutsche Börse after its failed bid for the London Stock Exchange in December 2004. But there is no happy ending for Mr Incredible in this version – Seifert was unseated on the May 9, 2005 – and is clearly still angry and incredulous that Hohn won. Not only that, the incidental Frenchman, Jean-Francois Théodore, chief executive of Euronext, is still on the loose.
In an unlikely paean to Rhenish capitalism, Seifert’s book – to date published only in German – calls for Hohn and his ilk to be caged before any more damage is done to the world’s businesses. In particular, in an open letter at the end, he asks European finance ministers for harsher treatment of “acting in concert”, which enables a minority of shareholders to rob the majority of their will. Punishment, he says, should include an immediate suspension of the culprits’ share voting rights by the regulator once acting in concert is suspected and financial penalties that pose an “existential risk” to the guilty.
He asks for a loosening of “antiquated” restrictions on traditional institutional investors and asset managers (who are forbidden to take short positions) in order to remove part of the raison d’etre for hedge funds; he asks for more transparency for all actors on the developed world’s capital markets, including those “registered on the Cayman Islands”, so that the hidden conflicts of interest built into some hedge fund positions are revealed. In particular, he thinks that short positions should regularly and promptly be disclosed. Above all, the day-to-day running of listed companies should remain with their executive boards and must not be handed to shareholder activists – not least, he argues, because this gives them privileged access to information and so renders them insider traders.
So, what turned a self-professed proponent of capital markets in general – and share ownership in particular – into a passionate enemy of shareholder activism and a champion of traditional German corporate governance? How does an ex-McKinsey man – and this is an irony Seifert admits to – find himself expanding in such lurid terms the anti-capitalist rhetoric of the former chairman of Germany’s Social Democrats?
“Locusts” has quickly become the accepted German tabloid name for hedge funds and other turbo-capitalists since Franz Münterfering used the term to add class-war spice to Gerhard Schröder’s unsuccessful re-election campaign in the summer of 2005. Seifert takes it into wide-screen surround-sound, referring repeatedly to insect clouds on the horizon, humming wings and the like. He seems to believe the metaphor. Seifert is seeking the broadest possible audience for his revenge, too. The book, with its references to jazz concerts, pipe-smoking and grillfests, is pitched – not entirely successfully – at a folksy, teacherly level, accessible to the suspicious German grandmother with a handful of troublesome Deutsche Telekom shares, and addressed directly as an appeal to the politicians who could supposedly regulate hedge funds back out of Germany AG’s boardrooms.
On the December 13, 2004 Deutsche Börse made public its offer to buy the London Stock Exchange for 530 pence per share. This was in the wake of an abortive merger in 1999/2000 (iX), and a number of false dawns with Théodore, whom Seifert has a colleague liken to Inspector Clouseau.
From today’s perspective, the price Seifert offered 16 months ago looks like a steal – the LSE share price was trading at over 1,000 pence at the start of April. But Chris Hohn of TCI, whose holding in Deutsche Börse went from under a measly 2% to around 8% during the drama, alleged over the following months that this was a misuse of shareholder’s money; that LSE was worth half the price; and, most importantly, that the way in which the decision had been made to bid breeched shareholders’ right of say and raised serious corporate governance issues.
Hohn was joined by a significant handful of other minority investors, who are named from time to time but are not the focus of Seifert’s bitterness. Hohn is treated as the embodiment of the problem, and the ringleader of a group that Seifert suspects acted in concert.
The nasty personal power-struggle that unfolded between Hohn and Seifert culminated – after the abandonment of the LSE takeover and a massive share-buy-back programme – in the latter’s ejection from the Börse. Forming the centrepiece of the book, Seifert regards this as a symbolic battle between the pernicious minority, short-term “Anglo-Saxon” investors in search of alpha and the heroic, serious long-term investors interested in the commercial health and sustainable profitability of the corporation.
Seifert, who describes Hohn as “that weirdo in the corner at a party” and someone “who probably couldn’t find the ‘on’ button of a pocket calculator”, claims not to know to this day what Hohn “actually wanted”.
The tale, it seems, boils down to an offer of friendship that Seifert unwittingly rebuffed, and the revenge that a spurned Hohn sought to wreak. TCI is said to have called a member of the Deutsche Börse advisory team directly after the acquisition announcement to offer their full support and to do “everything in their power” to prevent a counter-bid from Euronext.
By mid-January 2005, the hedge fund was demanding an extraordinary general meeting for a vote of no confidence in the supervisory board and trying to depose its chairman, Rolf Breuer. An extraordinary personal email duel played out between Seifert and Hohn, who at one point accused the Börse of balance-sheet trickery. Hohn even concluded one of his many hectorings with a reminder that the company belonged to its shareholders, “and not to you, Mr Seifert”. This was the nub of the struggle.
Meanwhile Seifert, who was after all running a notably successful and profitable company – something he never tires of pointing out – couldn’t seem to get Hohn & Co to understand that German companies are subject to German, and not British, corporate governance rules.
Seifert, who studies game theory in his spare time, had to play a complicated game in his move on the LSE. Key factors for success included the advantage of surprise – both vis-à-vis the target and his rival, Théodore/Euronext – and the need to retain a poker face on the maximum possible bid. An EGM would have put paid to all of this. It turns out that Deutsche Börse had calculated the economic ceiling on their potential bid to be 620 pence. No doubt, without his troublesome shareholders, Seifert would have raised his bid from 530 pence and, possibly, realized his dream to own the LSE.
But this is where Seifert accidentally vindicates Hohn. It is clear from Seifert’s depiction at least that Hohn is a curious character, whose erratic and personal campaign changed course each day. Hohn’s demands are presented as inconsistent – at one point he demanded the introduction of a new member to the supervisory board who was already on it, only later to place the same individual on a list of those who must be sacked. Seifert complains that Hohn’s tactics were unfair and possibly “tested the borders of legality”; that his motives were unclear and, Seifert suspects, dubious: rumour had it that the rebel hedge funds wished to stop the deal in order to prevent a sudden decline in the value of their Euronext holdings.
But the fundamental point remains: Seifert seems not to have understood that when a company issues shares, it hands away power – quite something for the CEO of a key stock exchange. It is also clear that, like his challenger, Seifert was not motivated solely by economic drivers. A key argument in his book for the acquisition of the LSE is that the financial markets of Europe must be consolidated – for the benefit of customers, capital efficiency, labour markets and economic growth. This is a noble goal, perhaps, but it surely should not be the primary objective of a listed company CEO who is accountable to shareholders, pesky or otherwise.
Despite the bile he directs at Hohn, Seifert comes across as his own worst enemy. He is aware that he is considered to be arrogant and dirigiste, but does little to dispel this impression. Indeed, he finishes on the assertion that, despite the odd mistake, if he could do it all again, he wouldn’t change a thing. He liberally scatters blame across a range of major and minor irritants, including dumb journalists, the perfidious English, patriotism, lack of patriotism, spineless regulators and politicians, over-regulation, traitorous colleagues (the Börse is alleged to have had its own Deep Throat), flaky supervisory board members, bad coffee in Starbucks, Rolf Breuer’s ineptitude at a news conference, and many other factors besides. Everybody gets the blame – except himself.
Perhaps, if Seifert had bothered with the early offers of affection from Hohn, all would have been well. Instead, all he has done is write a book with the sole intention of proving his righteousness.
Invasion der Heuschrecken – Intrigen – Machtkämpfe – Markmanipulation (Invasion of the Locusts – intrigues – power struggles – market manipulation); by Werner G Seifert with Hans Joachim Voth; published by Econ