Freesteel Blog » Financial nonsense at Vero

Financial nonsense at Vero

Monday, September 28th, 2009 at 11:41 am Written by:

The Freesteel blog has a history of being interested in the Vero Software company, among others.

Here is an unusually interesting Vero Software 17 September 2009 press release:

The Board of Vero notes the recent movement in the Company’s share price. The Company has received a provisional approach from a financial institution that may or may not lead to an offer being made for the Company. Discussions are at a very early stage and there can be no certainty that an offer will be forthcoming.

In accordance with Rule 2.10 of the City Code on Takeovers and Mergers, the Company confirms that it has 37,261,166 Ordinary Shares of 0.5p each in issue and admitted to trading on the London Stock Exchange under UK ISIN code GB0002678273

Here’s what that looks like:

veroshareprice

The daily breakdown in volume is 173,907 at £14.50 on 15 September, 366,264 at £20.50 on 16 September, and 164,969 at £18.25 on 17 September from the News Analysis tab on the London Stock Market page linked to from here.

I don’t know exactly what the numbers mean (being a mere software engineer), but it looks like a blip, particularly in light of the following press release:

NOTIFICATION OF MAJOR INTERESTS IN SHARES

Full name of person(s) subject to the notification obligation (iii): Foresight 3 VCT plc
Date of the transaction: 16 September 2009
Date on which issuer notified: 17 September 2009
Threshold(s) that is/are crossed or reached: 3%

This information hasn’t yet been entered into the table here:

Shareholder Ordinary 0.5 pence shares % of issued share capital
P. Gyllenhammar 8,253,722 22.2
D. A. Babbs 4,903,380 13.2
E. Galardo 3,440,474 9.2
Artemis AIM VCT plc 2,325,582 6.2
Baronsmead VCT 2 plc 2,325,582 6.2
Baronsmead VCT plc 1,600,000 4.3
Baronsmead VCT 3 plc 1,395,349 3.7
Noble Enterprise VCT 1,330,233 3.6
M. Cignetti 1,259,866 3.4

Now that I have archived it, when they update the webpage it’ll be possible to infer who sold the shares to Foresight. Later in the year, if I stay on this story, Foresight may disclose how much they paid for Vero stock in one of their brochures.

Speaking as a mere Software Engineer, I know that the further you get away from the coal face, as it were, the less you know. The Vero management — according to their website materials — lead you to believe that they have an extremely limited interest in the software engineering (all they ever talk about is financial engineering).

The VCT investors, being even further from the centre of activity, almost certainly know nothing about the state of the software development of the company. And there’s nowhere they’ll find the information out because the financial structuring is entirely walled off from the actuality.

When you know nothing, all you can do is follow others. A good lot to track are the company directors, as they ought to know a thing or two about the value:

verodirectordealings

As you can see, the company poured a load of shares into the pockets of the directors in 2004, and they haven’t sold them yet. Either they have confidence in the company, or they are not selling to prevent others losing confidence.

If I had time to go through all their Annual Accounts again, I’d be able to tell whether any of the programmers have been given shares. (I don’t think so.)

The programmers are going to know if they are being beaten on features by their competitors, or whether they have just thought of a brilliant killer feature, so they buy some shares in advance because they know their work is going to make the company a lot more valuable, they hope.

Somehow I don’t find that story very convincing, even as an idealistic argument.

As has been demonstrated conclusively over the last few years, the whole financial engineering methodology in the western world is bunk. It has resulted in a severely damaging misallocation of wealth away from places where it could result in a lot of value being created, and towards socially useless activities.

In the Vero company, the distinction between such activities is stark. Value (for everyone concerned) is created by the debugging and improving of the software which they sell and is widely used, whilst farting around with share dealings and corporate technicalities (though probably much harder to do), is arguably totally useless.

Unfortunately, you can get a lot more power and money by focussing all your efforts on the latter while virtually ignoring the former.

There hasn’t been a much public debate as to why the financial system doesn’t work — according to the way it diverts resources away from where it is useful. I am not interested in moralistic ideological arguments about ownership rights, freely entered into contracts, capitalist libertarian theory and related bollocks. The question is, does it actually perform well? Can we introduce rules and regulation so that the results are not so self-evidently poor?

Often the diagnosis of the problem centres on the presence of conflicts of interest. Brutal transparency is the current prescription, tried only when the corporate-owned government is broke and can no longer treat the symptoms with bail-out money.

But I don’t think that’s the full story.

I think the root cause of the problem is that those who disburse the money have no knowledge and no information about the businesses they are investing in. This makes their decisions easy to cheat on the one hand. And on the other — when they are not being cheated — likely to be based on bollocks. They may as well be picking lottery numbers.

But, you say, people don’t have time to check out every company they invest in to the detail necessary. It’s too complicated and fast moving. And they have no right to speak to the employees directly.

And I say, Exactly.

Perhaps it’s a consequence of the extreme concentration of wealth today. The few who have control of most of the wealth don’t have any time to consider where they are putting the money. So it gets done poorly and with little concern for the effect.

And the people who do know how stuff work — for example, the employees in the businesses — are not at any time represented in the market place.

So why is anyone surprised when there is so much systematic misallocation of wealth?

2 Comments

  • 1. Freesteel&hellip replies at 1st October 2009, 9:35 am :

    […] This is a follow-on from Financial nonsense at Vero. […]

  • 2. Freesteel&hellip replies at 29th October 2009, 12:43 pm :

    […] of which brings us up to today, following my earlier notes about Vero on a “provisional approach from a financial institution that may or may not lead to an offer […]

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