Vericool Finance

The new topsy-turvy world of finance has turned the business world upside down – and the old established rules no longer apply. No one, perhaps, feels the truth of this more keenly than David Ross, the boy-wonder entrepreneur who, in partnership with Charles Dunstone, built Carphone Warehouse into the biggest mobile phone operation in Europe.

Two years ago, “Rossy” seemed to have it all. His near 20% stake in Carphone, combined with an extensive commercial property portfolio, had seen his wealth soar to some £900m. With several chairmanships under his belt, Ross was much in demand: the Tories even considered him for their London mayoral candidate. He was a businessman of his time. His fall may be equally apt.

The credit crunch has hit Ross hard: his shares in Carphone have fallen 75% since their peak last year and the value of his Kandahar Real Estate portfolio has plummeted. But the revelation that shocked the market was that Ross, recently hired by Boris Johnson to inject financial discipline into the 2012 London Olympics committee, had been secretly using shares – in Carphone Warehouse, National Express, Big Yellow and Cosalt – to guarantee personal loans shoring up his property empire.

Pending an investigation by the FSA, he has resigned all his posts and now faces public ruin.

Ross’s actions were not illegal so much as very stupid. He has been a director of public companies long enough to know the stock-market rules. If you have pledged your shares as collateral in a loan, you have to declare the fact.

Ross insists he won’t default on the £100m he reportedly owes JPMorgan, but if the bank insists on calling in its collateral, his partner, Dunstone, is in a fix.

As a 22% shareholder himself, Dunstone cannot buy out Ross’s 19.4% stake unless he makes a full takeover bid, according to City rules. No wonder Dunstone is desperate to find a third-party buyer.

There are good reasons for these disclosure rules, which were established during the recession of the early 1990s when several high-profile entrepreneurs – including Asil Nadir of Polly Peck fame – pledged shares as collateral against personal loans. When Nadir defaulted and the shares were called in, the share price bombed.

These are anxious times for all involved, and a private tragedy for Ross. But the mixing of private and public company interests invariably ends disastrously. Ross is just the latest to find out the hard way.

Earlier this year Sir Richard Branson pulled off quite a coup when he sold his mobile phone business to NTL for more than £900m, and took an 11% stake in the merged group. But it seems the deal was not enough for Branson, who is encouraging NTL to take an even bolder step – a cash bid for ITV.

Branson has long nurtured ambitions of TV stardom and such a deal would certainly change the face of British broadcasting by posing a significant challenge to BskyB, the Murdoch-controlled satellite group. But is it really a runner?

Takeover proposals come in all shapes and sizes. This one falls into the category of two drunks attempting to prop each other up. The rationale behind the merger – convergence – seems logical enough. On paper, ITV’s content and production capabilities would seem a near perfect match for NTL’s cable distribution network and broadband subscriber base.

But it’s questionable whether NTL is up to managing its own business, let alone pulling off a miracle at ITV. This, after all, is the company known to its customers as “NT hell”.

NTL is certainly stoking suspicion that it prefers to buy, rather than manage, its way out of trouble. It is a deal junkie, yet to bed down either its Telewest or Virgin Mobile mergers, and it is funding its deals on borrowings. Branson & Co would need to stump up £6bn to land ITV, taking loss-making NTL’s total debt up to £12bn.

Still, you can’t fault the killer timing. ITV is a rudderless ship, having swapped a lame duck chief executive for no chief at all. But shareholders may take the view that a management vacuum is preferable to being swallowed by a heavily indebted, poorly managed business, even if it is rebranded Virgin Media.

Perhaps the only merit of this triumph of the Branson ego over common sense is that it will flush out more credible bidders and deliver a sharp reminder to ITV to get its house in order. RTL, the owner of Channel 5, has been tipped as a possible suitor alongside several private equity groups.

This is a soap that is set to run and run, although if NTL can come up with the cash, there’s a strong possibility it will succeed. ITV shareholders are so desperate, they’d accept any cash exit at a credible price.

No wonder competitors are rubbing their hands with glee. Reasonably, they anticipate years of chaos and further decline.