Time to raise a Magnum Black to Warren Buffett and his Krafty krew. In a single month they have added £20bn to the wealth of Unilever shareholders, without our having to do anything, let alone agonise over whether Dove is a national treasure or a commercial enterprise.
The share price is now above the (presumably) sighting shot of $50, which shows how clever Mr Buffett was to spot an undervalued business. Whether by luck or judgement, Unilever CEO Paul Polman had his defences in place, allowing him to set off a fine display of defensive fireworks without breaking Takeover Panel rules.
We don’t need Kraft; we have our own version of zero budgetting; we’ve got plans to bring the future nearer, and we’ve got so much capital that we could borrow to give some away. This is called “making the balance sheet more efficient” and next to an actual takeover, it’s what investment bankers like to do best.
What’s more, it can be worth doing for the company too. Unfortunately for the bankers’ bonuses, it’s hard to see why in this case. Risk capital allows more risk, to reap higher long-term rewards. The chart of the Unilever share price looks less like one for a steady supplier of soaps and fats to the world than that of a dot-com rocket, only measured in decades rather than months. Over the years, investors who have taken their capital out of the business have lived to regret it.
Yet despite this record, Mr Polman still feels Unilever has had a lucky escape from the ravening beasts of Kraft. The takeover rules are strict about forward-looking statements, and he was fortunate to have sufficiently worked-through plans to respond immediately without breaking them.
Now he wants those rules to be tilted towards the defence of “national champions”. Never mind that Unilever’s structure structure already makes it a dual-nationality champion, this is a thin argument. The Marmite manufacturer is not a national champion but a commercial business owned by its shareholders. If they collectively decide to sell it, they may be misguided, but should be free to do so.
There are always things that a big company can do better, and jolts like this provide the impetus to find them. Mr Polman should thank Mr Buffett and keep Unilever looking to the long term. It seems to work.
Our money down the drain
Macquarie is finally cashing in its Thames Water chips. The investment bank has made a stonking return from a low-risk investment, although exactly how stonking is hard to say. Infrastructure consultant Martin Blaiklock, a careful analyst of opaque utilities, puts it between 20 and 27 per cent annualised over the decade of ownership.
He can’t be more accurate, he says, because it’s unclear about a little matter of where a £500m dividend went when Macquarie bought the business from RWE. Then, the last vestiges of transparency disappeared via the Cayman Islands, leaving Thames Water Utilities, which actually runs the water, submerged under seven corporate layers.
The steady replacement of equity with debt contributed to Thames’ inability to pay for the super-sewer now starting to grind its way under the river. A separate company, also Macquaried, was needed, offering the prospect of more specialist, opaque financial engineering now the Thames Water game is over. Not for nothing is Macquarie dubbed Australia’s version of Goldman Sachs.
He’s blue as well as purple
It’s hard to blame the executives at Purplebricks, the new model estate agent, for selling a slug of their holdings. The shares had more than doubled since Christmas when in February the company announced plans to conquer America, raising £50m at 220p a share, a small discount, to pay for the adventure. The price carried on, mysteriously, all the way to 360p ahead of last week’s shareholders’ meeting to approve selling the new shares to outsiders rather than to existing owners. They’ve since come back to 307p, and on Thursday the executives placed £24m-worth at 300p. Spare a thought, though, for lettings director Richard Jacques. On January 20, he sold 35,000 shares at 160p. Seven days later, after the price hit 193p, the company issued a “no idea why” statement. How true.
This is my FT column from Saturday