Jan du Plessis, BT’s chairman, broke the news in June. Major shareholders had been urging him to find someone more skilled in telecoms and technology. Given the horrendously complex challenges that BT faces, Mr du Plessis had said that the role would be a “tall order” for anyone brave enough to take it on. A “genius” was needed.
The search went global. Liv Garfield, who once headed Openreach, now chief executive of Severn Trent, was mentioned. As was Olaf Swantee, who integrated Orange and T-Mobile to form EE, sold EE to BT, and left to run the Swiss telecoms company Sunrise. Then there was Ronan Dunne, former head of O2, now head of US telecoms company Verizon’s consumer arm. And Dominique Leroy, chief executive of Belgian telecoms company Proximus. All were in secure roles, with trusted teams supporting them. Why abandon those to risk their reputations by running BT?
The front-runner emerged as Philip Jansen, the co-chief executive of Worldpay Inc, but BT was said to be baulking at the cost of buying out the multi-million share awards that he would forfeit if he jumped ship. Maybe that was speculation, because BT is now due to compensate him with just £0.9m of its shares (subject, curiously, to Worldpay’s performance conditions, rather than BT’s). But he’s paying for the privilege. Not only has he agreed to a pay package that’s not much higher than Mr Patterson’s, but he has also agreed to stump up £2m of his own money to invest in BT shares.
The network effect
Mr Jansen is due to work with Mr Patterson for a month, before becoming BT’s new chief executive from 1 February next year. They are hardly strangers. Over 20 years ago, they worked together at Procter & Gamble. And in 1999, Mr Jansen was group marketing director of Telewest, the cable company that rolled into Virgin Media, when he hired Mr Patterson to lead the marketing of its broadband service. They also both served as chief executives under the same chairman, Sir Mike Rake – Mr Patterson when Mr Rake chaired BT before Mr du Plessis, and Mr Jansen when Mr Rake went on to chair Worldpay plc. The old boys’ club? It helps. But much more relevant is Mr Jansen’s track record, not least at Worldpay.
For many, Worldpay was the one that got away. It provides the technology for companies such as retailers to accept payments in stores and online, an activity that was for years regarded as a sleepy backwater of finance. Within the Royal Bank of Scotland it lacked focus, investment and skilled staff, so when RBS had to sell it as a condition of being bailed out by the taxpayer, what was sold to private equity was little more than a ramshackle, disconnected mixture of technology platforms and a customer list with some salespeople. True, Google and Apple were clients, so maybe Bain Capital and Advent were prepared to pay RBS £2bn because they recognised the potential – that in a digital world payment processing would help companies sell more and so become a strategic necessity for them.
The private equity duo acquired 80 per cent in 2010, the remaining 20 per cent in 2013 and proceeded to plough in over a £1bn more. About half went on overhauling Worldpay’s technology infrastructure and the rest on acquisitions and doubling the number of employees. It wasn’t easy. Worldpay’s technology was intertwined with RBS’s archaic and unreliable systems. The decision was taken to build new IT systems from scratch – a massive risk given the scale of its operations. Mr Jansen became chief executive in 2013, and his team also created a legal function, built an HR function, and continued to launch new products and innovative propositions. As Worldpay expanded into payment acceptance, cyber security, fraud and data analytics, it attracted some of the world's largest global brands and retailers as customers.
By 2015, Worldpay Limited had become a global leader in payments processing, operating in 146 countries and 126 currencies. Several bidders made approaches, including France’s Ingenico, which made an all-cash offer of £6.6bn. Instead, the company went for an initial public offering and floated as Worldpay plc. Competition among payment processors is fierce, though. Revenues are threatened by caps on fees and changes in technology, and the best game plan is to scale up and reduce costs. And in early 2016, Worldpay was said to be looking for acquisitions to remedy a perceived lack of scale in the US, but Brexit scuppered that. As sterling slid after the marginal referendum result, UK fintechs such as Worldpay, ARM and Sky became more attractive prey for foreign predators. Worldpay plc was acquired by Vantiv last year for £9.3bn and the enlarged group is now a US company, Worldpay Inc, and worth about the same as BT (£22bn).
The road to riches
That, in a nutshell, is how Mr Jansen accrued an estimated £100m. It was said that he made £50m from the IPO, just two years after he became chief executive of Worldpay Limited. A couple of years later, in August 2017, it was reported that he stood to gain £34m from the Vantiv deal and, sensitive to accusations of greed, was quoted as retorting: “I own a lot of shares in the company. I've taken out £32m so far, but I have been in private equity for a long time… all the managers have made a fortune – tens of millions. They're not doing it for the money.”
He had been in private equity since 2010, when Bain Capital headhunted him to run Brake Bros, but most of his gains came from Worldpay. The pay in private equity groups is not made public in the same way as pay has to be for publicly quoted companies – they tend to pay modestly in cash but generously in shares. As such, it slips under the radar of critics of high pay. Even when Worldpay was a plc, Mr Jansen’s pay escaped criticism because his long-term share awards, which account for most of a typical chief executive’s pay package, would not have reached their maturity date.
Contrast this with Persimmon, where the media has recently hounded its chief executive, Jeff Fairbairn, out of office. The gain on his share options was about the same magnitude as Mr Jansen’s, and was accrued over a similar period. The reason they became so valuable is also similar – Persimmon’s share price quadrupled over five years. The true element of pay was the value of the original award; the gain or loss since was a forced investment. And yet, perversely, such investment gains are treated as pay in the 'Single Figure of Total Remuneration' that publicly quoted companies have to publish. The gains are taxed as income too. In private equity, they are recognised as investment gains and enjoy lower taxes.
Ah, critics say, but Persimmon’s options ballooned because of windfall gains. The Help-to-Buy scheme was a tail wind. Persimmon could well respond that, like Worldpay, it simply adjusted its business to fit within the constraints set by the powers-that-be. It conceded that the original option grant proved unexpectedly generous, but there again, 85 per cent of its shareholders had endorsed it. Nevertheless, its chairman and remuneration committee chair duly resigned. But nobody resigned at Worldpay, where the rapid flotation and subsequent sale could also be said to have showered windfall gains.
True, the challenges facing Mr Jansen and his team were tougher. Their enormous skill in making Worldpay a technological triumph and pulling off the UK's largest-ever financial technology IPO is impressive. Whether their ultimate rewards were proportionate to their undoubted success remains a moot point.
Rebuilding BT
So, given his wealth, why would Mr Jansen want to take on the minefield that is BT? Developing the potential of EE, including a push on 5G technology and convergent (mobile and fixed) bundling, should play to his strengths, as should reinvigorating Openreach to take fibre to more homes and premises. That should keep Ofcom happy, and rebuilding that relationship would not go amiss. Mr Patterson’s pet project, the broadcasting of live sport, has failed to attract sufficient paying customers. Will it ever? His current reorganisation aims to cut 13,000 jobs. Will it be counter-productive? BT’s debt has grown, its free cash flow has dwindled and its pension deficit can’t be ignored. Is the dividend sustainable? And will there be any more unpleasant surprises? Some kitchen-sinking might be needed.
Certainly, there’s enough there for Mr Jansen to get his teeth into. At Worldpay, frustratingly, he was sharing the top job. A role with sole control must have appealed. Back in private equity, he had the luxury of being buttressed from external scrutiny; in BT, he will be expected to account for every significant event. That will be a distraction – and no doubt an irritation – but winning the trust of long-term shareholders is vital for the role.
So why put his reputation on the line at BT? Despite the potential £8m a year he could earn, to suggest that someone with his wealth is in it for the money would be ludicrous. What’s his motivation then? Most likely, it’s the scale of the challenges that lie ahead. And nothing to do with the money, despite the misleading impression given by BT’s so-called Incentive Share Plan, in which the bulk of his pay is tied up. He could start by having it renamed as the long-term Investment Share Plan. It might help.
