Carillion's upbeat strategy? Shoot the messenger

an article by Nils Pratley published in the Guardian

Minutes of the doomed boardroom show Morgan Stanley was fired after failing to back rights issue

You can’t argue with boardroom minutes. They’re the definitive summary of who said what. They are compiled by the company secretary, or stand-in, with all directors given the opportunity to check for accuracy afterwards. And what do minutes of Carillion’s board meeting on 5 July last year show? Self-delusion on a scale that, outside the banking sector circa 2008, would be hard to believe at a public company employing tens of thousands of workers.

Of all the pieces of evidence unearthed by the two select committees of MPs, these minutes may be the most damning. The scene was the board’s receipt of the devastating news that Morgan Stanley, the company’s joint corporate broker, was no longer prepared to underwrite a cash-raising rights issue that had been under preparation since May.

Peter Moorhouse from Morgan Stanley delivered the bleak message in person. The size of the bad contracts – to be revealed the following week as a £845m provision – was too great. The investment case was “insufficient to support an underwriting”. New investors “would not be convinced”. Morgan Stanley’s investment committee would not sign off.

This should have been a neon-lit warning to the directors that Carillion was in deep financial trouble. Hedge funds, remember, had been shorting the shares for months. Now quick access to new equity was being turned off.

The board’s reaction was extraordinary. First, the minutes show, the directors asked no questions of Moorhouse. None. Instead, when Morgan Stanley’s man had left the room, Carillion’s bosses agreed that their advisers were being terribly unreasonable. Moorhouse’s rationale was “not credible given that there had been no obvious change to the market position, the position of the business or its prospects” since May.

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Hazel’s comment
Unbelievable.
But that is what happened.
Which of the larger PFI contractors is going to be next? I am not a crystal ball reader and am well out of touch with such things but it seems almost inevitable.

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