Jeremy Warner's Outlook: Perhaps best not to bank on it, but the nuclear winter seems finally to be breaking at BT
Boots seeks a miracle growth cure; Bolloré demands board seats at Aegis; So farewell then, John Studzinski
Friday 19 May 2006
Early in his reign as the chief executive of British Telecom, Ben Verwaayen set himself the target of producing revenue growth of 6 to 8 per cent. It took hardly any time at all for him to miss it, and ever since he's been strapped to the wheel in penance, stoically forgoing any confident reference to the future at all.
Yesterday, having achieved revenue growth in the the final quarter of the year to March of 7 per cent, slap bang in the middle of his previous target range, he allowed the self-imposed bonds to be loosened just a little by expressing confidence in revenue, profits and dividend growth for the coming year. It is the first time he's said anything as positive as this since 2002. His reward was a rise of more than 8 per cent in the share price.
For a company which five years ago had been largely written off by the City as a busted flush, this was an astonishingly good performance. Stripped of his mobile assets, which were demerged into O2, Mr Verwaayen was dealt an exceptionally poor hand compared with his continental counterparts, yet he seems to have defied the sceptics to produce a really quite remarkable turnaround in BT's fortunes.
The key is the growth BT is achieving in "new wave" revenues - broadband and international IT networking. Now nearly one-third of total revenues, these new sources of income are growing more rapidly than the legacy revenues of domestic line rental and traditional, switched telephony can fall.
Few believed Mr Verwaayen could pull this off when he joined, yet particularly in the international business-to-business market, the performance has been outstanding. Today, BT is one of the top two players in the market, alongside the France Telecom owned Equant. Its growth in IT networking services to multinational businesses is higher than IBM and Accenture.
In a back to the future reversal in assessment, some in the City are even beginning to argue that BT should be valued more like a technology stock than a wasting utility. That may be going too far, but certainly we seem to have reached another defining moment in the company's history. BT has turned the corner.
Boots seeks a miracle growth cure
Plans to merge Boots with Alliance UniChem were greeted with widespread scepticism when they were announced in autumn. Many took the view that even if regulators allowed it, the City certainly wouldn't. Five months later and regulators have cleared the deal with only minor conditions.
Shareholders too have largely abandoned any objections they might have had, though one of the company's largest shareholders, the American value investor Silchester International Investors, remains hostile. Even so, the £7bn merger is expected to be voted through at a shareholders' meeting in early July, allowing final consummation. For the time being, the sceptics have been vanquished.
The rationale for Boots, repeated again yesterday with the announcement of annual results, lies less with the synergies, which are nothing special, but with the idea that Alliance provides the company with options for growth. This is never a particularly good reason for a merger, for it is too intangible a claim to be properly assessed.
All the same, it would be hard to think of a more mature company than Boots. Something had to be done. Both sales and profits per square foot are higher than almost any other retailer in Europe. With growing competition from the supermarkets and online, there's only really one way they can go. Richard Baker, with nearly three years under his belt as chief executive, has done a creditable job in halting the slide in sales, but only by clobbering the margin. Nor are his reforms to all his customers' liking.
Will Alliance's Stefano Pessina provide the miracle remedy. Shareholders seem resigned to at least trying it out. Whether it proves to be the hoped for Viagra, or just plain snake oil, remains to be seen.
Bolloré demands board seats at Aegis
Vincent Bolloré, the Paris-based corporate raider, wants to appoint two of his own men to the board of Aegis, the media buying group where he has built a 27.56 per cent stake. It's not clear that individual shareholder interest should ever be entitled to direct boardroom representation, but as Aegis has correctly surmised, in circumstances like these, where M. Bolloré is chairman of a major competitor in the form of the French advertising group, Havas, it is totally unacceptable.
The potential for conflict of interest is only too apparent. As members of the Aegis board, M. Bolloré's two directors would have access to the company's innermost secrets - its strategy, its pitches, its acquisition targets and its management accounts. It would be naive to think that both the outline and the detail of these commercial confidences wouldn't go straight back to M. Bolloré, who with his other hat on would use them to instruct his plans at Havas.
It is still unclear what M. Bolloré's ultimate intentions might be with Aegis. Even those who have talked to him about it are none the wiser. His position is one of Gallic inscrutability. Yet presumably they are eventually to bring about a merger of Havas and Aegis, however illogical this might seem from Aegis's point of view. Here again, M. Bolloré's presence on the board would be an unhelpful one. If he's got a merger proposal that would be in the interests of all Aegis shareholders, then he should put it.
What he really wants to do, it would seem, is use his minority shareholding to control the company. This is still a perfectly acceptable, relatively common modus operandi on the French corporate scene. Yet for obvious reasons, it is very much frowned upon on our Anglo-Saxon shores.
Sir Martin Sorrell's WPP is out of Takeover Panel purdah next week, when the advertising Goliath becomes free again to bid for Aegis. This is an advertising soap with a lot more mileage in it yet.
So farewell then, John Studzinski
John Studzinski has looked destined to move on from HSBC from the moment his co-head of investment banking, Stuart Gulliver, was given responsibility for most of the job. The ambassadorial, advisory role that Studs was given as a sop was all very well, but he's still too young, ambitious and addicted to his trade to be put out to pasture. The new position was never going to satisfy such a consummate networker and workaholic.
Now he's off to Blackstone, leaving everyone wondering what is to become of HSBC's ambitions in investment banking once he's gone. Recruited three or four years back from Morgan Stanley, his brief was to use HSBC's global reach, contacts and balance sheet to build the investment banking operation into a force to be reckoned with - an advisory business that could stand alongside the best of them. Citigroup, the only other truly global bank, has managed it, so why not HSBC?
Ironically, there have been a number of signs recently of the strategy paying dividends. HSBC is currently involved in a number of Europe's biggest takeover battles, including Lakshmi Mittal's bid for Arcelor, E.ON's proposed takeover of Endesa, and Ferrovial's bid for BAA. Yet I'm not altogether sure HSBC ever really had the stomach for what it would take to join the bulge-bracket firms of Wall Street, or was prepared to make the necessary investment. Nor is it entirely clear what an investment bank really is any longer, with the boundaries between advice, securities trading, private-equity, structured finance and conventional corporate lending increasingly blurred. The high-profile bit of investment banking -straight mergers and acquisitions advice - is these days a comparatively minor part of the genre.
It is in this part of the garden - persuading clients to do deals - that Studs's talents really lie. Was HSBC ever prepared to pay the mega salaries, or tolerate the the overblown egos, necessary to excel at these rarefied heights of the investment banking game? Now that Studs is going, Mr Gulliver can be relied on to run a ship more in keeping with HSBC's parsimonious culture. That doesn't mean that HSBC is abandoning the chase, but it will undoubtedly be a less exuberant approach, more firmly based on the trading side of investment banking, from here on in.
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