The folly of serial sell-offs: Doing the splits can leave the mother ship vulnerable, says ALEX BRUMMER
At first blush, there looks to be very little in common at FTSE 100 quoted firms ABF, Pearson and Whitbread.
ABF is doing well on the back of sales at Primark and a turnaround in sugar. Pearson is having a torrid time after six profit warnings in five years as it seeks to make the transition from printed textbooks to digital teaching. It finds itself on the brink of being tipped out of the FTSE.
And shrunken Whitbread has been hurt by uncertainty over business bookings and is waiting for the Brexit bounce.
ABF has resisted the temptation to put all its eggs in one basket in spite of suggestions from the analyst and activist communities that it could release value by splitting off Primark
The three firms are connected by deep family roots. In the case of Whitbread and Pearson, this is vestigial and only shows in the names on the letterhead.
At ABF, where the Weston family and charitable interests hold 54.5 per cent of the stock, the founding dynasty is still very much in control.
The result of strong family involvement is that ABF does not find itself under siege from short-term investors seeking constant gratification.
Whitbread received a terrific price from Coca-Cola for Costa Coffee when put under pressure by investors. That might have relieved the company from its debts and resolved a lingering pension problem.
But it also meant that chief executive Alison Brittain could not fall back on Costa’s expansion prospects when hospitality went through a bad patch.
The drama has been even greater at Pearson. On paper, it may have looked a fine strategy to invest in digital and focus on core textbook publishing and education franchises.
Elsewhere in publishing, Relx has been brilliant in making that transition and now sits high up the FTSE with a market value of £38.6billion.
Pearson has been discarding creative and media enterprises – the Financial Times, the Economist, Penguin, Madame Tussauds – over a sustained period of time.
It finds itself wholly dependent on education publishing, the vagaries of US state budgets and the textbook and examination buying cycle.
Former chief executive Marjorie Scardino once told me there were important synergies in owning prestige brands such as the FT because of the doors it opened to selling textbooks and digital teaching materials in fast growing Asian markets.
ABF has resisted the temptation to put all its eggs in one basket in spite of suggestions from analysts that it could release value by splitting off Primark.
Ownership of several unrelated activities means that when sugar, its foods brands (Twinings, Jordans and Ovaltine to name three) are having a hard time, or vice versa, ABF weathers the storm. It’s too late for Pearson or Whitbread to heed the lessons.
But doing the splits can leave the mother ship vulnerable.
It was predictable that Michael O’Leary of Ryanair would join Willie Walsh of BA-owner IAG in shouting from the roof tops about the iniquity of the rescue of Flybe.
O’Leary has a good turn of phrase and his description of a ‘billionaires bail-out’ will get the juices flowing for opponents of the Government’s intervention. His most telling point is that Flybe is a serial bankrupt, and would be again.
But when questioned as to whether he would take on the Flybe routes, O’Leary was more evasive.
Sajid Javid’s bail-out is in the broader national interest of making sure the harder-to-reach bits of the UK have good transport links.
There is a cogent case for the Chancellor to offer all the UK airlines a break on airline passenger duty for domestic flights in the Budget. That could be achieved for about half-a-mile of Crossrail track.
But it is a very different case from challenging the political judgement of a newly-elected government with a big majority.
A big question of recent months is what the governor of the Bank of England Mark Carney will do when he finally steps down from office in March 2020 after three postponements.
There have been all manner of suggestions, ranging from managing director of the IMF to a shot at Canadian politics and a role in digital money (which he has firmly ruled out).
Now we know. As well as being the UN’s unpaid climate change guru, he has agreed with Boris Johnson to take on the demanding role of preparing the UK and the world for the COP26 environmental summit scheduled for Glasgow in November.