黑洞社区

Five years from now, the board of Barratt will no doubt look back at last week鈥檚 share price meltdown and smile as they recall the premature rumours of their company鈥檚 demise.

But it is far from certain that Mark Clare, the housebuilder鈥檚 51-year-old chief executive (pictured), will be there to share the joke.

Many commentators have questioned how well he responded to the sequence of events that started with the run on Northern Rock last summer and ended with the collapse of housebuilders鈥� share prices last week. The calls for him to go, which started at the beginning of the year, are getting louder as the feeling grows that Barratt has not reacted as decisively as its peers in the deteriorating market.

The 拢3bn-turnover company has survived share plunges before, most notably during the recession of the early nineties and after a World in Action documentary about the safety of its timber-frame houses in 1983.

But last week鈥檚 fall was spectacular: the firm鈥檚 price halved from 120p to 60p between Monday and Wednesday.

The drop was the result of short selling by hedge funds (see box). A source close to the company said Clare was 鈥渟eriously irritated鈥� by the way traders made money after the shares went into freefall. He is understood to want the Financial Services Authority to investigate what he described as the share price 鈥渂ecoming unhinged from normality鈥�.

What is not clear yet is the effect that a few hedge fund managers have had on the job security of Barratt鈥檚 5,500 staff.

On its own, a nose-diving market cap will not trigger a breach of banking covenants, but it will make an uncomfortable backdrop to the 鈥済rown-up鈥� talks Barratt is having with its lenders.

The main topic of conversation will be its 拢1.8bn of debt and whether its land writedowns in July will result in breaches in asset covenants (that is, the ratio of its assets to its debt).

The weakness of Clare鈥檚 position is not entirely based on Barratt鈥檚 financial performance. There is also what many in the City have perceived to be a flat-footed response to the events of the past nine months and a sense that he has a poor grasp on what makes the sector tick; his previous job was managing director of British Gas Residential Energy, which he left in October 2006.

Eyebrows were raised when Clare abandoned the firm鈥檚 longstanding policy of organic growth and paid 拢2.2bn in cash (拢900m) and shares for Wilson Bowden last February 鈥� the very top of the market.

A falling market cap will not breach banking covenants, but it will make an uncomfortable backdrop to talks Barratt is having with its lenders

On 17 January this year, a deeper sense of unease about Barratt鈥檚 modus operandi emerged. In a statement to the City, Clare described trading as 鈥渟atisfactory鈥� and the forward order book as 鈥渆ncouraging鈥�. A week earlier Bovis Homes had pointed to an 鈥渦nclear鈥� outlook and called on the government to cut interest rates. Did the industry outsider not see what others were hinting at?

Not according to some. His next public statement caused serious questions to be raised about his suitability for the job among some in the City. When the company鈥檚 interim results were announced on 27 February, Clare said: 鈥淭he year has started well. We have increased outlets, and have a strong order book. Visitor and reservation levels continue to improve and we are optimistic this will continue through the spring selling season.鈥� A day earlier Persimmon had said: 鈥淲hen confidence returns and sentiment improves we anticipate a return to a stronger market; in the meantime we remain cautious.鈥� Not everyone is so quick to attack Clare. In person he is affable under questioning and there is a feeling he is a victim of circumstances.

He was brought in specifically to make a big acquisition, causing one analyst to say: 鈥淵ou have to have a certain amount of sympathy for him.

Imagine you鈥檇 just written a 拢2.2bn cheque for Wilson Bowden. To then tell people you鈥檙e going backwards at a rate of knots is difficult to do. Human nature is to wait and see.鈥�

Clare himself has batted away speculation he may be forced out and it is unlikely that such a corporate climber would leave a chief executive鈥檚 job readily. Speaking to 黑洞社区 this week, he said: 鈥淭here have been no discussions about my future with the board. They are very supportive of our strategy and the team we have.鈥�

He dismissed questions over his purchase of Wilson Bowden, saying: 鈥淚t was a transformational deal that has given us extra capacity and will see us in a very strong position once the industry recovers from the credit crunch.鈥�

He also hit back at criticisms of his relative inexperience in leading a housebuilder in a downturn pointing to a cost-cutting programme of 拢40m, that is to be increased further. 鈥淚 don鈥檛 think what we have been saying to the City is overly optimistic 鈥� it is realistic. At the start of the year our forward order book was only down 7%. We made it clear that we weren鈥檛 in a good position but not as bad as some.鈥�

Then there is the question of redundancies. In spring many housebuilders responded to the downturn by cutting staff. Barratt took another tack. It spoke about cutting its supply chain by 20% and instituting a recruitment freeze. Most agree that if it has not already quietly made redundancies, it should.

Taylor Wimpey, which is groaning under a similar debt of 拢1.4bn, and is exposed to the fragile US market, made 600 redundancies and carried out a restructure. This decisiveness bought Pete Redfern, its chief executive, some time.

Clare might not be so lucky. In a statement to the City made in response to the drop in Barratt鈥檚 share price, he attempted to calm nerves by saying land writedowns in July would be 鈥渓imited鈥�.

It didn鈥檛 work for some. One analyst said: 鈥淭hat shows he simply doesn鈥檛 get it. Any housebuilder will tell you that you want to make writedowns as heavy as possible in one go. Based on the assumption that a breach is inevitable, it would improve the balance sheet in the long run and means you can sell units more cheaply than your rivals. Investors also want to see a line drawn in the sand. The last thing they want is death by a thousand cuts.鈥�