MD writes...

Flog Watch
An occasional tabulation of the main losses to UK plc: 2004 to date.


Westland Augusta plc; Buyer: Finnemeccanica
Abbey plc; Buyer: Grupo Santander
RMC plc; Buyer: Cemex
South Staffs Water plc; Buyer: First Islamic


Ah. None.

The City
Muted howls of anguish from the City this week. This correspondent was somewhat surprised that the “great and good” of the City thought that a UK banker would head up Abbey once the Spanish had taken over. What on earth were they thinking? The first rule of a takeover is that all the top jobs go to the winning side (maybe not immediately but over time). Titular local heads may be put in place but the power invariably lies behind the throne. It is something that the City and more importantly HMG would do well to learn.

So another great UK Company will shortly get gobbled up – in this instance the company has fallen (unopposed) not because it isn’t world class – it is; and not because it was too small to compete it isn’t. New readers please note that both are typical “investment banker” well argued (sic) justifications spouted when they want to flog something! The company is “truly international” to quote the Daily Telegraph. Unfortunately it appeared cheap to the Mexicans (ergo it probably was) and had the added benefit of allowing them to consolidate their foothold in Europe and elsewhere. No prizes for guessing what nationality senior staff will soon be; nor where HQ will migrate to. I’d guess Spain, since you asked, as they already have significant operations there.

Why do we keep doing this to ourselves? Moreover why do HMG and specifically the DTI and the Treasury continue to let it happen without so much as saying a word?

Shell recently announced a shake up to it's 100 year old corporate structure and in so doing capitulated to ill informed scribblers - mostly London based analysts and journalists in the City. Well chaps you got what you wanted, but will you still want to hold the shares? The new company Royal Dutch Shell plc to be based in the Netherlands (with a listing in London) is effectively a takeover by any other name of Shell Transport & Trading plc. No doubt the Dutch home (despite most activities currently being run out of London) is tax-driven (certainly not cost driven), and it means a significantly lesser influence for the UK. The operations in the UK will just become another rather small subsidiary. Whether all UK funds that currently hold shares will continue to be able to hold shares is a moot point. Quite what it will bring in terms of efficiencies will be limited; no management will have changed; and the company will continue to be run by committee - how else can it be run? UK shareholders should vote against this proposal when the opportunity comes in 2005.

Still no sense from HMG on this potentially devastating issue for many individuals and their families. Other than a vague suggestion that we should all save more and, by they way, put it into equities. My question is which and how if every thing of importance and quality has been sold overseas?

Clearly the “investment bankers” have nothing better to do than continue the slow drip of damaging nonsense about Sainsbury’s. Yes, there’s a job to do there but let the new team get on with it. Not more than a few months after the authorities have pronounced on the UK market than they’re stirring it up again suggesting that Wal-Mart (who have their own troubles in the UK) and/or the dream team of Leighton and Norman will return to front a leveraged bid. Why would they do any better? And why would the authorities allow further consolidation? Things have changed out there since Norman and Leighton last walked the aisles. Tesco is likely to remain number one but there will be at least two very strong challengers out there; pick any couple from Asda, Morrison’s and Sainsbury’s. By the way chaps – some market intelligence – Tesco too has empty shelves!

Very interesting short article on GM in the FT last Saturday (see John Plender’s column). Just a 0.25% downward revision in the assumptions for the pension fund rate of return which determines the contribution level (they assume 9%) would increase pensions liabilities to the equivalent of GM’s shareholder funds! One wonders how the auditors of GM and Ford can sign off the accounts on a going concern basis. Time for some major surgery, mostly in the US!

Makes you wonder how many other US companies use similarly heroic assumptions.

Those of us without a marketing qualification perhaps wondered why Unilever chose to concentrate on 400 brands. They perhaps silently questioned why so many fewer brands (they started with something like 1600) really were better; those of us who have actually lived abroad (and not necessarily so far from these shores) value the differences and more importantly the choice. The beauty of breadth is just that breadth – it does provide cover for when the mega brand collapses and, incidentally, makes nice niche market profits. Look at the success Premier Foods has made of allegedly minor “has been” British brands. I’m not suggesting there wasn’t some room for consolidation. But the world is a very big and diverse place and a focus on only 400 brands for a company as big as Unilever is too few!

Watch this space for an about turn on strategy. Remember - you saw it here first!

Signing off, stock pickers.

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