Jeremy Warner's Outlook: A missed opportunity as Unilever opts to keep dual nationality after exhaustive review

Carphone's blinder with OneTel buy; Johnston Press bags 'The Scotsman'
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The Independent Online

So there's a thing. Unilever has decided to do, er, virtually nothing about its dual-listed corporate structure. After all the hype and build up of what John Studzinski, the head of investment banking at HSBC, describes as one of the most exhaustive and thorough reviews ever undertaken in the City, investors would be forgiven for feeling somewhat underwhelmed by this non announcement.

What on earth has the chairman, Antony Burgmans, been doing these past nine or 10 months. This looks suspiciously like one of those exercises undertaken merely for the purpose of buying time and countering pressure for change. Who is going to quarrel with such an "exhaustive" examination of the merits and demerits of moving to a single domicile? No stone has been left unturned, no argument or consequence unaddressed, and the conclusion is that subject to one or two minor modifications, the existing structure is basically sound.

The shares will be split and consolidated so as to make them more equal in value, and the assets redistributed on an equal basis between the two companies. Shareholders also get the right to nominate directors to the board. But that's it. It's not much to show for such a long winded and expensive review.

On the principle that if it ain't broke, don't fix it, sometimes it is indeed right to do nothing at all, but even the chief executive, Patrick Cescau, admits that if Unilever were being set up today, no one in their right mind would do it on the basis of a dual domiciled structure. Virtually all the other Anglo-Dutch combines, including most recently Shell, have found the structure wanting - just a formula in the modern world for confusion in the chain of command and obfuscation in reporting channels - and given it up.

Unilever has been under similar pressure after last year warning on profits - the first time it has had to do so in 75 years. In an effort to meet its targets for earnings growth, the company had neglected the top line and was suddenly forced to start spending much more heavily on promotion to protect its revenues. Since then, the company has centralised its management structure to create a single chain of command and iron out the duplication which has historically been a feature at Unilever.

It has also abolished the idiosyncrasy of having two executive chairmen of equal stature, a recipe for paralysis in decision making if ever there was one, and moved to the more conventional approach of chief executive and non-executive chairman.

So why not go the whole hog and create a single company? Well there are still some tax advantages in dual nationality. The company also claims there is some advantage in having competing national cultures in the group, though this is a somewhat nebulous concept to prove. Reckitt Benckiser, also Anglo-Dutch in origin, seems rather to disprove the point, with much higher levels of product innovation and top line growth.

Then finally there is the advantage of choice for investors between euro and sterling denominated stock. But essentially it comes down to the upheaval of change simply not being worth the cost. Why waste management time on structural change when there is so much to be done with the business operationally?

Admittedly the corporate crisis facing Unilever is far less severe than was the case at Shell. Unilever also already has a unified board. Yet more radical structural reform would have sent out a powerfully galvanising message to employees and investors alike that this is a company determined to modernise. An important opportunity has been missed.

Carphone's blinder with OneTel buy

When Centrica put OneTel up for sale, there was speculation that the business might fetch as much as £400m. That figure always did look fanciful, but to have to settle for as little as £132m looks a touch desperate. Even this doesn't tell the full truth, for the headline number is flattered by the inclusion of £37.1m as a downpayment by Carphone Warehouse on Centrica's ability to keep selling OneTel to gas and electricity customers.

But if this looks a disappointing sale for Centrica, it is a blinder of a deal for Carphone and its ever active founder, Charles Dunstone. Taking into account the acquisition of Tele2, Mr Dunstone becomes the only serious player left in the so-called carrier-pre-select market.

From a cost per head perspective, the OneTel acquisition might seem expensive at roughly £85 per customer. By using the Carphone Warehouse chain as a distribution channel, Mr Dunstone has been able to achieve customer acquisition costs of as little as £15 for his existing Talk Talk service.

Yet there is plainly substantial opportunity value here, and by cutting out duplicated infrastructure costs, OneTel should add between £25m and £30m to Carphone's profits next year, creating a stand-alone telecoms company with profits of perhaps as much as £50m. Not bad from a standing start just three years ago.

It's all bad news for British Telecom and cable, where margin erosion shows no sign of abating, but for Carphone it's another triumph. No wonder the shares are flying. After the gains of recent months, they are now finally back above their flotation price, struck amid the valuation madness of the technology bubble. This time around the price is well supported.

Johnston Press bags 'The Scotsman'

Forget the rest, there are only two questions the media is interested in as far as the Barclay brothers are concerned; who are to be the next editors of The Daily Telegraph and The Spectator? Yet as the rumour mill grinds on, the real action is elsewhere. Yesterday the Barclays unexpectedly announced they were selling Scotsman Publications to Johnston Press.

This was one of their first forays into the newspaper industry, so why are they selling? Like Daily Mail & General Trust, which is disposing of all its regional newspapers, the Barclays take the view that you either have to be further into the regional press or out of it altogether.

After being denied ownership of The Herald in Glasgow, which would have given them substantial synergies, they lost interest in the Scottish press and, in any case, they now have bigger fish to fry in The Daily Telegraph, which has a largish readership north of the border and already finds itself in conflict with The Scotsman. At £160m, roughly twice what they paid for the titles 10 years ago, the price also looks a decent one, particular as they keep The Scotsman building, worth £25m, and get paid rent for it to boot.

As for Johnston Press's Tim Bowdler, the deal seems to work for him too. He only needs to improve the profitability of Scotsman Publications by £1m a year for the acquisition to be earnings enhancing, which given that the Ebit margin of Johnston is 34 per cent, against Scotsman's 12 per cent, ought to be something of a stroll in the park.

Indeed, Mr Bowdler's reputation as a cost cutter par excellence who makes even David Montgomery look a teddy bear by comparison, must already be filling The Scotsman's staff with dread. They needn't worry, says Mr Bowdler, who boasts that he has increased the Yorkshire Post's editorial budget in every year since he acquired the title in 2002.

The trick is rather in decent management, ruthless efficiency in the back office, and giving the titles strong appeal to local advertisers. The perception of slash and burn is wholly wrong, he insists, nor should anyone assume it is Johnston's plan to make The Scotsman a 34 per cent business, nice though that would be. We'll see, but the concentration of Britain's local press into a small number of specialist operators continues apace. Next stop Northcliffe Newspapers, which competition regulators allowing, Johnston also hopes to acquire.

j.warner@independent.co.uk

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