No Pain No Gain: Portfolio in profit but loss of S&N to be mourned
Saturday 02 February 2008
The No Pain, No Gain portfolio has endured quite a battering in the past few months. So I should be enthusiastically toasting brewer Scottish & Newcastle's apparent surrender to the combined might of Continental predators, Carlsberg and Heineken, following a hostile three-month confrontation.
But I must confess that a touch of sadness tempers my cheer. It is always nice to score an investment hit. And the 800p cash bid means the portfolio has more than doubled its money. Yet the annihilation of another leading British company at the hands of overseas predators is difficult for an old timer to swallow.
Scottish is not a vital part of the nation's infrastructure. However, it is the last survivor of what was once a powerful force – the "big six" of British brewing. At one time, the likes of Allied Domecq and Bass could mix it with any overseas marauder. But persistent Government interference – and a lack of consistency – drew the strength from the beerage. In the past two decades our top brewers have fallen to overseas invaders.
Appeasement by many leading British companies when faced by foreign bidders is likely to damage the long-term financial health of the nation. From a variety of industries resistance has been minimal. Scottish, once the smallest of the brewing old guard, is to be carved up by Carlsberg and Heineken – already known as "the lager louts". The resulting devastation will lead to many jobs being lost and probably the sale of some operations.
Still I believe the fall of Scottish was inevitable once it failed to clinch a transformational deal. It was also weakened by its wide spread of shareholders. Both its conquerors can command the protection of powerful influences. There is still a chance Scottish will attract another bid. Anheuser-Busch and SABMiller could be interested. And the 800p a share offer, although probably adequate, is not top dollar.
My own guess is that Scottish should have commanded a figure nearer 850p. Its activities in the former Soviet Union and its Indian involvement, as well as its 25 per cent of the British beer market with leading brands like Fosters and John Smith's plus Bulmer's cider, suggest the world's seventh largest brewer is an exceedingly rich prize. Unlike many of our industry giants, it fought its corner but was probably caught on the hop by the stock market turmoil; no doubt thinking 800p was the best it could obtain. In the 1987 crash it had a similar experience but was then on the other side of the negotiating table.
Still, as a purely mercenary creation, the portfolio must count its blessings. After all, it has had to ditch, thankfully at a profit, three former high flyers and watch other constituents eroded in the stock market retreat.
When I descended on Scottish in 1999, the take-over influence loomed large in my thinking. The bid has been a long time coming. At one time, SABMiller got near to striking. But until the lager brewers emerged, action had been confined to Scottish deals that did not provide quite enough muscle to challenge the leaders of the brewing pack.
The Food & Drink Group, the Jamies and Henry J Bean bar chain, has made sure that any Scottish success does not go to my head. Its figures were bad enough to bring anyone down to earth with a resounding bang. FDG has, in effect, put itself up for sale. It says it is "sub scale" for the more demanding trading climate that is emerging and is "actively looking for a substantial corporate transaction". The pre-tax profit came out at £561,000 against £928,000.
It's all so different from last year when the group exuded confidence. With the shares bumping along at around 90p, after brushing 60p, the portfolio might as well hang on for the time being to see what sort of deal chairman Stephen Thomas can produce. After having paid 241.5 a share, most of its investment has already disappeared.
FDG may have been a little unlucky but it must take the blame for the current stock market disenchantment. The group has over the years cost lots of people lots of money. Don't forget, it started life as Hartford, featuring a host of celebrity names on its share register and running up-market restaurants, including the much-hyped Pharmacy in London's Notting Hill.
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