COMMENT : Why French bird in the hand is hard to reject

"Cleaning out the stables is only half the battle. Finding a way forward is the other half"
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The Independent Online
For Stuart Wallis, chief executive of Fisons, there was always a danger that the long-rumoured bid would emerge before he managed to establish the company with a credible strategy for the future. So it has proved with the hostile pounds 1.7bn offer from Rhone-Poulenc Rorer. When Mr Wallis took over a year ago, Fisons was a company for which it was hard to see a place in the fast-changing world of pharmaceuticals. Too small to justify its substantial and largely undirected research and development facility, it was also too large for the role of niche player. Financially, moreover, the company was slipping into the sea.

The first part of Mr Wallis's brief, to turn the company round and clean it up, is now largely over. Most of the R&D operation and peripheral operations have been sold, production facilities rationalised, and the cost base has been stripped to the bone. With the sale of scientific instruments, the process of transformation will be complete. Already, the achievement is impressive. Even before yesterday's bid, Fisons was one of the year's best-performing shares; the title of "Britain's worst-managed company" with which Fisons was branded a little while back, could hardly seem more inappropriate.

As all chief executives know, however, cleaning out the stables is only half the battle. Finding a way forward is the other half. As things stand, the future continues to look grim.

Patents are expiring, and while the life of some of these products might be extended by the development of enhanced delivery systems, the core business at Fisons is a mature and declining one. Mr Wallis never misses an opportunity to talk about the huge range of opportunities for alliances, link-ups and even full-scale mergers that exist in this industry. However, so far nothing has materialised. Talks with Medeva, one of the most obvious merger candidates and an obvious fit, came to naught. The prospect of finding and cementing the sort of tie-ups that would guarantee a sparkling future within the 60-day timetable of a bid, look remote.

Rhone-Poulenc, moreover, has more reason than most to buy Fisons outright given its existing strength in the respiratory field. The two companies also know each other relatively well through a number of well-established joint venture arrangements. Though Mr Wallis seems intent on fighting to the bitter end, persuading Rhone to up its offer a little may be the better policy. White knights may be hard to come by - three of the most obvious candidates, Astra, Glaxo and Schering-Plough, already have their own competing products either on the market or near to launch. Getting investors to accept his vision of the future may prove equally difficult for Mr Wallis.

Though earnings will rise steeply next year to put an exit multiple of around 16 on the shares - admittedly way below the norm for this sector - this may well mark the high point for Fisons given its declining revenue base. Mr Wallis has developed a good following in the City, but the bird in the hand is always a hard option to reject. In the absence of a white knight, Fisons is going to find it hard to convince investors it is worth much more than Rhone-Poulenc is offering. In France, the fear is that Rhone is overpaying.

A bad week for the private investor

It has not been a good week for the cause of the private investor. The Stock Exchange finally abandoned the rule that obliges a set proportion of all new issues to be reserved for the small shareholder while Crest, the electronic share settlement system to be introduced next year, announced a tariff structure that increases the costs of small transactions.

The effect of both moves is more symbolic than real. The new Crest tariffs make small transactions only marginally more expensive; nor was the Initial Public Offering rule doing much to expand share ownership.

Nonetheless, the impression is of a City that is giving up on the ideal of a share-owning democracy.

To assuage its conscience, the exchange has set up a committee under the City financier, Sir Mark Weinberg, to explore ways of making the private shareholding horse not only come to the water and drink, but keep coming back for more. This is easier said than done, as Sir Mark will tell anyone who cares to listen.

No European country has done more than Britain to trumpet the values of individual share ownership but it doesn't appear to have done any good. Even the privatisation give-aways seem only temporarily to have halted the trend of long-term decline.

Though the number of people holding shares has gone up, the proportion of shares held by private investors has fallen massively. In 1981, 28 per cent of the total value of UK quoted shares was held by individuals. Today, the proportion is down to 18 per cent.

Of those that bought in the privatisations, most took their profits and never returned. It is one thing to be spoon-fed a hyped, sure-bet privatisation stock; quite another to have the confidence to pick one's way through jungles of financial data to bet on a winner. Many people find this daunting, despite the fact that execution-only fees are down to rock bottom.

Instead, the vast majority have taken the easy route of having the choices and the portolio spread decided for them. The explosive growth in unit- linked forms of saving and investment is now the bedrock on which Britain's equity culture is founded. It constitutes a massive public commitment to the equity markets which sets Britain apart from its big continental European partners, and it is a thoroughly modern form of share-owning culture.

There is, however, something unsettling in the thought of an equity environment completely controlled by institutions. Indirect democracy is not the same as the real thing. The recent run of healthily rumbustious AGMs demonstrated that. For this reason above all, Sir Mark's quest deserves every encouragement.

Tomkins' power play backfires in City

When is a share buy-back not a share buyback? When it is announced by Tomkins, the industrial conglomerate, seems to be the answer.

Having announced that it is seeking powers to buy back up to 10 per cent of its shares, Tomkins then went out of its way to explain that it actually has no intention of exercising these powers.

In fact, Tomkins insists, it would not be advantageous to indulge in such an exercise because the money is needed to develop businesses and make acquisitions. Now if the rules were as they are in the United States, where shares can be bought back and kept in Treasury to be issued later if need arises, that would be different.

But they are not; in Britain shares bought back must be cancelled. So if Tomkins has no intention of actually launching a buy-back, why is it seeking powers for one? Just in case, seems to be the answer. Small wonder that dealers are confused.