A good rule for the cautious investor is never buy a share until the company has been publicly listed for at least a year – doubly so for businesses being sold by private equity. These holders are natural sellers and their skills include prettying up companies first. They have no long-term interest in the prospects for the business, and they know much more about those prospects than you do.
Rising share prices have presented the opportunity to the owners of Misys, Biffa and Hollywood Bowl among others. It may be that Misys is so transformed that a financial software business bought for £1.2bn in 2012 is worth £5.5bn today, or that this time, waste disposal really will prove that where there’s muck there’s money, or that we are going back to the future with sweaty shoes and ten-pin bowling.
However, there is an exception to test every rule, and this year’s monster flotation, O2, may be it. We have the inestimable Margrethe Vestager, the European Union competition commissioner who vetoed the purchase of O2 by 3 to thank for the opportunity. This ‘orrible merger would have cut the number of significant players in UK mobile telecoms from four to three, something that is self-evidently anti-competitive.
O2’s owner, Telefonica of Spain, is essentially a forced seller, struggling under a E53bn debt mountain. It has yet to commit formally to a public offering, but is widely expected to float the business this autumn. The price agreed with 3 was £10.25bn, which provides a good idea of the float price. Telefonica has said it plans to keep a majority holding, another powerful incentive to see share trading off to a good start, since it would make the rest easier to sell in the future.
The offer also presents a fine chance to win some customer loyalty in an industry which generally treats users with indifference bordering on contempt. Unfortunately a retail offer, let alone one targeted at O2’s 25m customers, is unlikely because the bankers see it as too much like hard work. Still, a big company priced to go is a rarity. Pay attention.
How to get Grayling off the hook
Whisper it, but the government may actually decide where to build London’s next runway. There is something of a high-stakes poker game going on at Heathrow, between the official proposal (a third runway) and the unofficial “Heathrow Hub” which extends one, and potentially both, runways westward. The Hub is much cheaper, would cut the early morning aircraft noise over west London, and redeem the (previous) PM’s promise of “no third runway.”
Heathrow’s owners have cold-shouldered the hub. Ferrovial of Spain overpaid for BAA, the airport’s owner, in 2006, and today’s shareholders also include China Investment Corporation, Qatar Holding and the Singapore government. A go-ahead for the third runway would dramatically raise the airport’s Regulated Asset Base, boosting what is a large long-term, low-risk investment.
However, Gatwick is winning the PR battle, and the danger for Heathrow’s shareholders is that the best may be the enemy of the good. Were they to formally embrace the hub as an acceptable second-best expansion, they might yet allow transport minister Chris Grayling to announce an elegant solution to this interminable problem.
Mine’s a gamble, not an investment
Now that shares in the big mining companies have soared from their January lows, the analysts are saying investors should buy them. There is something about this industry which wrong-foots experts and executives alike, as illustrated by the boom-bust-recovery at Glencore.
Floated in 2011 at the peak of the commodity boom, the shares dribbled down from 550p to a little more than £3 in 2014. Claiming they were cheap, the company then spent the next year and $1bn buying its own shares. They were nothing of the kind, and six months later Glencore was forced into an emergency equity issue to raise more than twice as much at less than half the price.
Soc Gen had decided Glencore shares were cheap at 180p and last week Liberum agreed that they are now too expensive to sell (sic) at today’s 210p. Goodness, dividend payments might even resume next year. Plenty of scope for trading, then, but please don’t call it investment.
This is my FT column from Saturday