The Private Investor: 'Chocs away. I have a chance of flying into profit with Thorntons'

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The Independent Online

What would you do with 1.4 million Easter eggs? I never did find out Thorntons did with its when it had them left over during a particularly bad promotion. They didn't send me one, although as a loyal shareholder the company does send me money-off vouchers with the annual report.

They're very handy, because you need to tuck into a chocolate dinosaur or something to cheer you up when reading the inevitable profit warning that usually accompanies news from the company.

I am old enough to remember the flotation of Thorntons in1988, but I bought my shares in the company rather later, in two tranches. The first lot was bought five years ago at 250p, when it was still regarded as a well-managed concern. The second lot was bought two years ago, when it seemed anything but, and the share price had bombed to 90p.

Since then, the shares have been creeping up, but shot up by 15 per cent to 155p last week on the news that my favourite confectioner has been in preliminary talks about a management buyout via a venture capital company.

Those talks may or may not lead to anything, but the company seems determined to take itself private one way or another. A complicating factor is the large Thornton family stake of 20 per cent. I was slightly surprised to learn that among the many advantages advertised for taking a listed company such as Thorntons private was that it could save £500,000 in fees, a material figure for a company that last month reported a pre-tax profit of £6.4m for the year ended June. If the analysts are right and the shares motor on to 180p a share, I might even end up in the money.

It's a sticky business, making chocolate. Or, rather, selling it. Thorntons' problem seems to have been that it got into retailing with 400 shops up and down the country doing varying amounts of business. And, as anyone can see, retailing is just about the worst business anyone can be in in this country, because you get squeezed from every side.

There was a scheme to convert some of the shops into coffee bars but, again, that had the problem of identity and of getting Thorntons into a market that was becoming absurdly saturated. I suppose Thorntons chocs aren't allowed on the Atkins diet either, which might be unhelpful.

Late on, Thorntons came up with the simple but effective idea of just making their chocolates, which are good, and letting supermarkets sell them. Long term, this would have been Thorntons' best bet but, as so often these days, with everything from Canary Wharf to Debenhams, some of the best businesses are going private, thanks to the weak equity market and low interest rates.

I think it's a great pity smaller, but hardly small, companies seem to find the stock market so little use. Partly this is down to the feeling that they are unloved and misunderstood, like neglected wives or mistresses. It is true they don't get the attention they deserve, and it is also fair to say the stock market can be a capricious beast, as experience of the past few years amply demonstrates.

Smaller company shares are, at times, illiquid. Even so, the market does remain the ideal place to raise equity capital, and innovations such as the Alternative Investment Market (AIM) are there to help companies not ready or willing for the onerous business of a full listing.

Perhaps the tendency of undervalued smaller companies to take themselves private provides a self-correcting mechanism for the market's failure to value them correctly but, as I have written before, it does rob smaller shareholders of the full benefit of the upside when it arrives (and when the company is often refloated on to the market).

The really brutal thing is where a company is simply delisted by the directors without reference to the other shareholdersl. I'm very pleased to say the Financial Services Authority has announced plans that companies will not be permitted to move off the market without the support of holders of 75 per cent of the shares, an approach the AIM market has already adopted.

s.o'grady@independent.co.uk

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