The Carphone Share Scandal
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.