City & Business: Cash cow disease
Sunday 30 October 1994
Rather than risk any more fiascos, it is taking the safe course of handing back the money to shareholders. Other utilities have solved the problem in a different way, using cash to buy up their own shares. This boosts earnings per share but does not have the same tax advantages.
In some parts of the City, these moves have been heralded as little short of financial genius. They are nothing of the sort. They are an admission of failure - that these companies are incapable of finding new business opportunities and generating real returns from them. The strategy gives the lie to utility directors' claims that they should be paid as well as the executives of any other billion-pound business. Milking a cash cow does not deserve the same reward as building a farm.
Non-utility businesses with cash piles are increasingly being urged to follow the example of the utilities. Reuters has already done so. Great Universal Stores, Glaxo, Guinness, Sears and Argos have all been mooted as candidates for such tactics. GEC could still afford to do so, even if its bid for VSEL is successful.
Boots, which reports interim results this Thursday, is expected to re-affirm that it is philosophically happy with the idea. It is already cash-positive and will be awash with spare cash if it finds a buyer for its pharmaceuticals arm. It wants out of prescription drugs development. Its acquisition record is embarrassing: the pounds 900m Ward White purchase is still heralded as one of the truly awful deals of the 1980s. And its attempts at building a business from scratch have been patchy. The Children's World chain is only just scrambling into profit after eight years. Meanwhile the superb Boots The Chemist chain continues to throw off cash by truckload.
Boots and others may choose to pay out bumper dividends or buy up their own shares. If they can't invest successfully, it is the least of all evils. But they should be under no illusions. If they start to behave like utilities, they will eventually be treated as such - and banished to the stockmarket basement as lowly rated yield stocks.
- 1 Snoop Dogg and Jared Leto buy a stake in Reddit as A-list invests $50m
- 2 Prince held a Facebook Q&A and this is the only question he answered
- 3 Car tax disc changes: Two days to go - and they affect you much more than just not displaying a piece of paper
- 4 Now we know whose fault it is if you end up being murdered in Thailand
- 5 35,000 walrus gather ashore on north-west Alaska beach 'for a rest'
Exclusive: 'Putin's Russia has been my biggest regret,' says Nato's outgoing Secretary General
The Osborne Ultimatum: Chancellor’s benefits freeze bombshell will affect ten million households
There’s no excuse for Dave Lee Travis’s behaviour, but we need to keep a sense of proportion
Should gay sex be illegal? 16% of Britons think so
Mark Reckless becomes second Tory MP to defect to Ukip in a month
Benefits 'smart cards' plan revealed by Iain Duncan Smith to stop claimants spending welfare money on alcohol
- < Previous
- Next >
iJobs Money & Business
£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...
NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...
£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...
Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...