A cautionary tale of two demergers

There could scarcely be a greater contrast than the two big demergers working their way through the City at the moment. Thorn EMI's share price has never looked back since the demerger of the EMI music business from the Thorn TV rental side was first mooted a couple of years back. For Hanson, the story has been the reverse. Its share price has fallen steadily against the market since proposals to split the once acquisitive conglomerate into four were announced seven months ago.

This is partly because the market reckons the demerger of EMI will ripen it for takeover by the likes of Disney or Bertelsmann. Not so any of the Hanson quadruplets. It hardly seems necessary for Lord Hanson to bring ridicule on himself by inserting a poison pill into the Millennium chemicals business that forms one of the four. Nobody would want to bid for these under-invested, cash-squeezed companies, anyway. But chiefly the contrast between the two stems from EMI being a class act in a very high growth business.

The same cannot be said of any of the Hanson four. Indeed, it is much worse than that. Hanson may never have been what it seemed. Its success may always have been as much a result of acquisition accounting and tax avoidance as anything else. Now that it is breaking itself up into four distinct companies, each individually making some kind of sense, comes the final reckoning. And it is not pleasant. It may be that the four collectively cannot afford the dividend the whole has been blithely paying out to shareholders all these years. Even the greatest illusionists cannot keep it up for ever.