Mulcahy set to go in 2003 after Kingfisher cash call

KINGFISHER is in a quandary. Overseas expansion has left it with a complex structure that cries out for simplification. It runs B&Q but does not fully own it. It owns the majority of Castorama in France but does not run it.

Chief executive Sir Geoff Mulcahy would dearly love to buy the 45% of Castorama that Kingfisher does not own, but to do so would cost about £3bn. That would mean a rights issue of at least £1bn and City institutions have let it be known they would only countenance this in return for Mulcahy's resignation.

Mulcahy was part of the original team that bid for Woolworths 20 years ago. The Paternoster deal was the springboard for today's Kingfisher and Sir Geoff's long involvement in the company gives him a sentimental attachment unusual in the modern commercial world.

Plans are afoot, however, to reach a compromise that should satisfy the City without doing permanent damage to Mulcahy's dignity.

Sir Geoff has already moved from a two-year to a one-year contract. In September that comes down to six months. Last May, he agreed to commit himself to Kingfisher for the next three years, but this was not part of his contract and so has no legal implications. Those close to Kingfisher believe Sir Geoff will leave in a year's time, quite probably after the 2003 annual meeting.

A rights issue could therefore be accompanied by a statement clarifying Mulcahy's departure date. That way the City could be satisfied that Sir Geoff is not going to hang around indefinitely, but he would be able to end his career knowing that the Castorama problem has been resolved. He would also be able to commemorate the 20th anniversary of the Paternoster deal this November.

Mulcahy turned 60 in February. Last year, he demerged Woolworths from the rest of the group, leaving B&Q and Comet as Kingfisher's two main British brands.

A cash-raising of between £2bn and £3bn would see the company regain full ownership of B&Q alongside Castorama's DIY chain in France and a host of other international do-it-yourself businesses. There would also be Comet over here and a string of electrical retailers in France and elsewhere.

The next logical step would be to demerge the Comet mini-empire. But that's another story...

Pay penalty

SIX months before the death of Robert Maxwell, a gifted media analyst was sacked from his City investment bank for daring to question Maxwell's accounting policies. Other parts of the firm did lucrative business with the media mogul and were not prepared to lose it for the sake of one outspoken researcher. Little has changed in the intervening years.

Equity researchers can only justify their enormous pay packets by helping the corporate finance arm of whichever integrated firm happens to employ them. Merrill Lynch has been singled out by the US authorities but analysts' lack of objectivity is widespread and widely-known.

Today's capitulation is just the beginning - and the breadth of concessions the firm has agreed will not go unnoticed by rivals.

Cynics have shrugged off the obvious conflicts of interest that arise when a firm simultaneously offers corporate finance advice and equity analysis. They believe investors should be aware of the situation when reading analysts' share recommendations. That, surely, is missing the point. What is the purpose of analytical reports if their conclusions are not to be taken seriously?

Merrill has taken a step in the right direction. If regulators demand true independence from researchers, however, their value to employers will fall dramatically. The next logical move is a massive cut in pay.

Dougal puzzle

HANSON chief executive Andrew Dougal wants to spend more time with his family. He has been working too hard and needs a break.

During his five years at the helm, Hanson has outperformed rivals and Dougal has earned a reputation as a shrewd and canny operator. He does not intend to spend the rest of his life bonding with his wife and children and playing golf. After a break, he wants to go back to work.

Investors may question why he has chosen to quit while stating openly that he is keen to return to the commercial world in due course. They may also be forgiven for wondering why his semi-retirement should be cushioned by a golden goodbye of £400,000. Hanson says the payment - equivalent to a year's basic salary - is part of its contractual obligation. But Dougal says he is leaving of his own accord.

Companies often have to pay executives unseemly sums to persuade them to leave ahead of time. Such pay-offs, known as rewards for failure, infuriate investors, employees and Government ministers alike.

Presenting an executive with several hundred thousand pounds when he is leaving of his own volition takes the pay-off culture a stage further. Shareholders need to know why Dougal is entitled to this money. They also need to ensure such generosity does not become common practice.