Private Investor: Why shareholders should sit pretty on their DFS shares

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The Independent Online

Looks like I got DFS rather wrong. A few weeks ago, I wrote about how sorry I was to see the firm being bought back by its founder, Graham (now Lord) Kirkham.

Looks like I got DFS rather wrong. A few weeks ago, I wrote about how sorry I was to see the firm being bought back by its founder, Graham (now Lord) Kirkham. Given that he himself owned 10 per cent of the shares and the board had recommended his bid, I thought it was a done deal. I also considered it not a very good deal. There was not much in the way of a premium and I don't think it offered a full and fair price for the company.

Much more than that, I was very impressed by the way DFS has performed since I bought a couple of hundred shares when it was floated in 1993. They were priced at 260p, they have returned about the same in dividends and special dividends since, and now Lord Kirkham is offering 445p per share for them.

Thus, DFS has shown excellent capital growth and a very respectable income, dividends and special dividend, and I saw no reason why I should be deprived of the future flows of these. After all, the whole point of investing in equities is for the return on capital they offer and when you find one that has provided such magnificent returns as DFS you tend to treasure it.

Now I find that, despite a threat by the independent directors to resign if Lord Kirkham's bid fails, there is much more resistance among institutional shareholders to his lordship taking DFS private than I would have thought possible.

M&G and Morley own 14 per cent of the company and have said they plan to vote against the offer. Because this is a scheme of arrangement, it is a serious matter as the "bid" can be blocked if more than 25 per cent of the shareholders vote against, as I now shall. (I was also ignorant of the fact that Lord Kirkham can't use his own 10 per cent shareholding to "vote for himself", so that too is a complicating factor.)

Yet, if Lord Kirkham is thwarted where will that leave the business? Without wishing to be too rude, the resignation of the independent director is probably neither here nor there as far as selling soft furnishings is concerned. The real question is what Lord Kirkham's attitude would be. It is an all-round unsatisfactory position. As far as my shares go, I shall be sitting tight on my DFS sofa.

I also have a sinking feeling about British Airways. Not that I have any less faith in the company's long-term ability to pull through the turbulence and become a winner in this appallingly difficult climate for the airlines. No, my unease reflects the fact that I didn't follow my own advice and buy more BA shares on the recent weaknesses in the share price - essentially very short-term market reactions to some grand standing by the management of the unions of the company. Still, some more bad publicity about flight cancellations might be enough to get them closer to the 200p level, at which I would like to buy some more - just as long as they don't cancel my flight.

Everyone loves a bad news story about BA and the company's PR effort has to make sure that British Airways don't go the way of British Leyland, British Steel, British Rail and pretty much everything else with the word British in it, and become a laughing stock. As it happens, the service I received on a recent BA flight back from Berlin was probably the best I've ever had on an airline, so I for one know they can do it. It's a great company, but its reputation, unjustifiably, seems to be getting a little dented lately.

Finally, a word on accident and sickness plans, which I slated last week. I have had a little bit of reader feedback on this, which confirmed that they are indeed a worse option than self insurance. As I recounted last week, to me the AA/Eagle Star/Zurich accident and sickness plan has brought me great disappointment, roughly on a par with my friendly society savings plans.

This all goes to prove what we know already; when it comes to winning the trust of the public with regards to financial services, from something as big as your pension to something as small as a modest sickness plan, the financial services companies - with few exceptions - are their own worst enemy.

s.o'grady@independent.co.uk

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