Sometimes a good guest vent goes a long way:

HSBC received a thumbs up from the city despite posting staggering write-downs in the US and in particular at it’s disastrous foray into the trailer trash credit card and loans business with Household. At the time of the deal it was obvious that this business was dog and that the deal was concoction of the ludicrously titled “investment” banks. Those of us with some sense and no corporate ego could see that the business was a disaster waiting to happen particularly when the business admitted obvious failings, viz:

  • Er we’ve just been fined $500m or thereabouts for misdemeanours but we’ve cleaned up our act;
  • We have a spanking credit model (see HSBC Annual Review 2003) that allows us to accept any kind of junk;
  • We don’t have enough credit collectors because we’re lean and mean;
  • Loans originated from “business partners” i.e. on commission;
  • Management will stay in place and they’ll continue to be paid millions per annum; and…
  • We’ve got a PowerPoint presentation that the investment bank and ourselves concocted over lunch that was staggering in its simplicity, absence of fact and ineptness.
Stung by this I wrote to the then Chairman of the bank and received an insulting and patronising letter from some lackey. Ho hum, meanwhile all went off in to the sunset richer except for the poor bloody shareholder.

Hot on the heels of announcing the closure of it’s George High Street operation Asda (Wal-Mart’s UK operation) is apparently interested in yet more mostly grotty, High Street stores with a mooted purchase of Somerfield currently owned by a consortium of Barclays Capital, Apax Partners and the widely spread Robert Tchenguiz (see Daily Mail 24/01/08). Quite why any one would consider paying the alleged £2.0-2.5bn asking price for a business that makes £26.4m is beyond me. The much bigger, more profitable and better in every respect Sainsbury’s is worth a positively cheap by comparison with a current market cap of c: £6.1bn.

Mitchells & Butlers
Another blighted company (and a former part of the once great Bass empire before the City whiz kids and our pension funds decided to destroy it) is M&B, in which I have to declare a miniscule interest. It too (like its ex-sister company Intercontinental) has been asset stripped by a “progressive” (excessive) dividend policy and a management more interested in financial engineering than growing the business and in doing so lost the company £274m and most probably its independence. I was disappointed that the recent clear out stopped at the Finance Director Karim Naffah and didn’t include the Chief Exec rolly poly Tim Clarke who shares at least equal responsibility. Mind you, this is the company where Roger Carr is chairman and he’s somewhat thinly spread. He is also an advisor to Kohlberg, Kravis & Roberts. It is outrageous that any public company would have on its board someone who is an advisor to an “investment” bank or hedge fund. If that isn’t a clear conflict of interest then I’m a Chinaman. Incidentally, in case you didn’t know Tchenguiz is an investor here too.

Another once great Midland’s company being slowly asset stripped and set up for a delisting (aka foreign takeover) is Cadbury’s. Here the CEO Todd Stizer (motto “to deliver superior shareowner performance”) aided and abetted by Goldman Sachs has been dismantling the business. Completion of their joint programme will be nicely timed to coincide with his retirement, no doubt. Plans have been knocked off course slightly by the recent market turmoil. Still not to be daunted and keen to keep fees hungry investment bankers happy they are pushing ahead with a de-merger, paring off a business with a reported underlying operating margin of 22.8% (pretty fantastic in this day and age) and creating two businesses BBB rated Cadbury and BBB- business in Dr Pepper. Cadbury (& Goldman’s) have previous form here, cutting off a high operating margin business with their sale of the equivalent European beverages business which had an operating margin of nearly 18%. Keen observers will note this stunning deal was for all of 2x sales.

This must be the most ludicrous time to undertake a de-merger, but not a peep from our on the ball financial press. Still rest assured the conflicted Roger Carr, currently a non-executive director and Deputy Chair and now Chairman designate will ensure fair play all round.

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  1. Ben // 3/07/2008 12:11:00 PM

    Very good post but who is the mystery blogger?

  2. RJH Adams // 3/07/2008 12:57:00 PM

    Hi Ben.

    Passed on your comment; perhaps he'll be in contact in due course.

    Can say he is a finance pro with plenty (ie circa 2 decades) of operational experience; as well as some merchant/investment bank duty thrown in.


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