Tonight:
4°c
Sir John Craven is the man who capped a long, distinguished City career by taking on the poisoned chalice marked Lonrho, drinking the contents — and surviving. As he puts it: “In 1997 the shareholder register was made up of Tiny Rowland's barmy army. Big institutional investors were under orders never to buy a share.”
A decade later, Craven had sold off Rowland's baubles, renamed the company Lonmin, transformed the share register and seen it arrive in the FTSE 100. At the height of the mining boom last summer Xstrata, another FTSE newcomer, whose chief executive Mick Davis often seems to prefer doing deals to digging stuff out of the ground, looked at Lonmin and coveted its platinum mines.
Inevitably, rumours started to circulate, and the Takeover Panel invited Xstrata to clarify things. The company admitted that it was planning a £5 billion cash bid, but it did not have the finance in place. That Davis was serious is beyond doubt, since Xstrata went on to build a 24.9% stake, but the commodities summer was over, metal prices started sliding, and bank finance went into midwinter.
The bid never happened. From over £35 at the height of the speculation, Lonmin shares plunged to under £9.Understandably, Craven is cross, and now he's stepped down from the Lonmin chair, he can say so.
He told the FT that the panel “made a great mistake” in forcing Xstrata's hand, causing “huge disruption in our company”. His decade of corporate rehabilitation “was destroyed in the space of two months. What happens now is that, at the sniff of a bid, the institutions are out and the risk arbitrageurs are in”.
There's a hint of sour grapes here, but he has a point. We'll never know whether Xstrata's bid would have been overtaken by the autumnal collapse, but Lonmin is not the first company to be damaged in the sacred cause of Avoiding a False Market. This goal is impossible; rumour often simply reflects the odds on some management action which the directors have not yet decided on themselves.
Companies now have the panel on one hand and the Financial Services Authority on the other, pressing them to reveal half-baked plans or possible setbacks on pain of censure or fines. The presumption is that putting this information into the public domain helps the market, regardless of any damage to the underlying business. In effect, the rules oblige listed companies to support the marketplace, rather than the other way around.
Xstrata's forced admission certainly stirred things up. The big shareholders whom Craven had spent so long wooing top-sliced their holdings, selling them to the gamblers and arbs.
With hindsight, this was a clever thing to do, but Tiny's barmy army would have been much harder to shake out, and would not have had to cut their positions when the bid collapsed. The damage to the price, and to the business, would have been correspondingly less.
We have become so used to the principle of instant disclosure that we hardly stop to think who gains from it. It certainly isn't the long-term holder, or the private shareholder; it may not even be the institutions for whom it's supposedly done, if they really are long-term holders. Today's Lonmin is a serious company, so when the chairman attacks this culture, both the panel and the FSA might ask themselves whether full-frontal nudity is really as pretty as they assume it to be.
Small bargains in the New Year sales
HAD you bought a portfolio of smaller company stocks at the beginning of 2008, it would be a sad, shrunken thing today.
According to the heroic band who track these minnows, the smallest 10% (by market value) of listed shares had their worst year for half a century, with the benchmark HGSC index falling by 40%.
The AIM index fell even further, by 62%.
The combination of poor liquidity, dependence on the faltering UK economy and the continuing retreat of the private investor has proved deadly, both for profits and share ratings. Yet in the last couple of months the rot has stopped, as buyers have found some irresistible value.
The problem for investors is getting enough knowledge and information about these neglected companies, since analysts can't generate enough trade from them to eat. The solution is to use someone else's expertise and spread the risk with a specialist investment trust.
The dash to liquidity has damaged these too, so they are standing on big discounts to
their asset values. In other words, today's buyer is getting a discount to already depressed prices.
The big beast in the small field is Mercantile, which has a so-so record, is on a 10% discount and yields 6.2% at 576p, but a better
bet could be Schroder UK Mid & Small Cap, which has a better record, and stands on a 16% discount at 128p to yield 4.1%.
The experts at Winterfloods also like Aberforth Smaller Companies, whose experienced managers have recently taken the plunge and borrowed to gear up the trust for the first time in many years.
On a 19% discount, it yields 5.6% at 337p, and the newly-enlarged Standard Life UK Smaller Companies is on a 14% discount at 95p, but the yield is only 1.8%.
If you do buy any of these, don't fret about the day-to-day price, but lock them away. Those green shoots are frostbitten today, but the financial winter won't last forever.
What's the hold-up at BP for Skinner?
Paul Skinner's arrival at BP seems oddly delayed. For months, it was assumed the Rio Tinto chairman would be anointed as the oil giant's next chairman. It seemed uncontroversial, but now we know his Rio exit date, there are stories everywhere reminding us that it paid too much for Alcan last year, on Skinner's watch.
With hindsight, the price was far too high, and now Rio is scrabbling for cash to repay debt.
Peter Sutherland has been in the BP chair since 1997, so he's in extra time on the governance scale, and now Tony Hayward is settled in as chief executive, there is no obvious excuse to stay on. Surely Sutherland's not trying to postpone giving up one of the plummiest seats in any British boardroom?
Why Aviva's hanging on to its orphans
THERE are few things as impenetrable to most of us as the figures from a life-assurance company. Yesterday Aviva, the life office that is spending heavily to kill off its trusted Norwich Union brand, produced new business numbers, with the figures restated from European Embedded Value to Market Consistent Embedded Value (you see what I mean).
The analysts could understand the unchanged dividend, while Aviva confirmed that the deal painfully hammered out to divi up “orphan assets” between shareholders and policyholders is off. After the latest fall in the stock market, it would rather hang on to them.
Aviva shares have been all over the place lately, reflecting the difficulty of meaningful analysis. Cazenove has taken a shot, concluding that the shares stand well below their run-off value. In other words, Aviva, like the holder of a life assurance policy, appears to be worth more dead than alive.
Doubtless Resolution's Clive Cowdery, who often gives the impression that he does understand this business, will study Aviva's five-part statement with particular care.
