By most yardsticks over most recent time periods Allied's share- price performance has been miserable. The shares are propped up by two things: a belief that things can get no worse and a belief that if they do get worse then someone else will bid. That falls very much into the sad-but- true category of investment analysis.
The challenge facing Allied and its new chairman, Sir Christopher Hogg, is to persuade investors that there are more substantive reasons to hold the company's shares. Sir Christopher has been right to maintain a discreet silence thus far, because he needs time to assess quite what he is working with - both in terms of assets and people.
The Bass deal, for instance, is more complex than just a disposal of an unwanted asset. The price is important (anything north of pounds 150m would be regarded as generous), but of more significance is what the deal says about beer supply and political risk. If Allied can extricate itself from the supply arrangements with Carlsberg-Tetley's new owners within 18 months, then the benefits for the 4,200-strong pub estate could be substantial. The deal will also look more robust from Allied's perspective if the risk of intervention from the competition authorities is seen to rest substantially with Bass.
Once the deal is completed, Sir Christopher will have a much clearer idea of the potential value of the retail estate. In many ways it is more attractive than the drinks business, which tends to attract much greater attention. Allied has a clear retailing culture, but it does not have a natural drinks culture.
It is remarkable that Allied has only just woken up to the notion of investing in its brands. It has identified perhaps a dozen that are of world class. Unfortunately, the culture of global brand management is not something that can be learnt. At Guinness and Grand Metropolitan, it is inbred throughout the organisation. The fear is that Allied is starting too late in the day to make up the lost ground.
Chief executive Tony Hales may talk optimistically about harvesting the brand portfolio, but unfortunately his crop is a little on the weedy side. The multiplicity of brands remains a distraction. The only way to maximise shareholder value would be to sell the entire drinks division. In Seagram there is a potential purchaser, if only it could be persuaded to avert its gaze from the bright lights of Hollywood. The fit is so natural that Seagram would be able to afford the price Allied would demand.
The drinks division could be worth as much as Allied's current entire market capitalisation. The funds released would immediately negate the argument that the spirits division's cash flow is needed to fund the retail business's expansion. And without drinks, the Baskin Robbins and Dunkin' Donuts franchises would suddenly sit much more comfortably in a clearly focused retailing group.
Sir Christopher will not be rushed into making any big changes, but he is conscious that the clock is ticking. Allied has disappointed too much in the past for it to be able to buy much more time. If Sir Christopher cannot wake the company up then he must break it up.
Time to make fwends
Clare Spottiswoode, the director- general of Ofgas, was recently described rather cruelly to me as having "Violet Elizabeth Bott tendencies". She, you may remember, was the lisping little girl who haunted Richmal Crompton's William with her threats to "Sthcweam and sthcweam and sthcweam until I'm sick". The comparison was made in reference to Ms Spottiswoode's absolute conviction that her plans for new price controls on TransCo, British Gas's gas transportation business, were both intellectually and commercially unassailable. Like Violet Elizabeth, Ms Spottiswoode appeared determined to get her own way.
The comparison is not only cruel but unfair. Ms Spottiswoode is altogether more reasonable and personable than Ms Bott. However, there is little doubt that she is prepared to pursue her regulatory obligations with determination.
There is a worry, however, that this determination has made it difficult for her to take that all important step back to reconsider her approach and re-test her hypothesis. In an area that is so complex and contentious and where there are so many vested interests at play it is essential that a cool objectivity is applied.
Last week's announcement that Ofgas's final proposals for Trans- Co's new price regime would be delayed until the middle of next month provides the opportunity to inject that objectivity.
British Gas has mounted an eloquent and persuasive critique of the original Ofgas proposals. The company certainly has a lot to lose if they were to be implemented in full. Simply to put its arguments into the "well they would say that, wouldn't they?" category would be dangerously complacent.
If the two sides cannot reach an accommodation over the next few weeks, then a reference to the Monopolies and Mergers Commission is inevitable. That would be damaging for British Gas but also for the regulatory process. If the MMC finds in favour of British Gas, then it undermines the integrity of the regulatory regime.
A crucial paragraph in the recent MMC report into BAA suggests the MMC may indeed support British Gas. The report makes clear the importance of maintaining consistency in the valuation of the asset base. Without that consistency, the report says, it would raise the prospect that future regulators would use different values than those used by the MMC. That, it says, would create uncertainty.
Yet Ofgas is currently proposing just such a change in asset values to those adopted by an MMC report into British Gas in 1993. If the MMC wants to preserve a degree of consistency about the competition regime in the UK it would be forced to rule against Ofgas.
If Ofgas is to continue to regulate with authority, it must be seen to be firm but fair. There are already fears that it has underest- imated the implications of its proposals for safety. It cannot afford to be seen to be attempting to overturn the cornerstone of regulatory consistency.
Ofgas has the time now to reach an agreement with British Gas. That time should be put to good use.Reuse content