Forget Liggett, BAT will come bouncing back
Sunday 17 March 1996
At one stage last week they plunged below 500p, and they ended the week at 514p, still 10 per cent below their levels of two weeks ago. Around pounds 1.7bn has been wiped from BAT's stock market value. The trigger, of course, was the astounding decision by a rival US cigarette maker, Liggett, to settle with anti-tobacco litigants.
The decision was immediately seized on by the anti-smoking lobby as the first breach in the dam, a surrender that would lead other tobacco companies to capitulate and would unleash a torrent of fresh claims.
But peer a little closer and BAT shareholders' fears look hugely overdone. First, Liggett's motives seem to have little to do with an objective assessment of the relative merits and costs of settling. Instead, the entire episode seems to be a ploy by Liggett's controlling shareholder, Bennett LeBow, to improve his chances of taking control of a much bigger fish - the food and cigarettes giant RJR Nabisco. He wants to break up the group and, the industry believes, combine the cigarettes arm with Liggett. But a break-up is only possible if tobacco claims are first settled.
Second, the tobacco industry's record with juries is astonishingly successful. Despite 40 years of litigation, the industry has not paid out one cent in compensation. BAT alone has successfully fought hundreds of cases, winning all but one, and even that defeat was overturned on appeal. Juries have invariably sided with the tobacco industry. Of course cigarettes cause heart disease and lung cancer but, goes the thinking in the jury room, smokers were well aware of the fact when they lit up. Even the change of tack by plaintiffs - they are now focusing on the addictiveness of cigarettes - is unlikely to find much sympathy with jurors. Every juror knows smokers who have successfully quit.
The share price slide has been overdone. BAT shares are due for a bounce.
Yorkshire plods on
SO, Trevor Newton has finally gone. The Yorkshire Water managing director who famously didn't bathe (at least not in Yorkshire) has quit. His departure was first foreshadowed in the Independent on Sunday on 7 January - a story rubbished at the time by the company. All but one of the executive directors of last year have now gone.
How does this leave the company? In pretty lousy shape, actually. For some extraordinary reason, the non-executive directors consider the group does not now need a chief executive or managing director. Brandon Gough, the former Coopers & Lybrand chairman, has been drafted in as a non-executive chairman. But, bizarrely, the most senior executive will now be Kevin Bond, who has spent the last five years as a water regulator and the 17 years previous to that as a policeman. He has, as far as I can ascertain from Yorkshire Water, no business experience at all.
Stand by, meanwhile, for a barrage of flying mud: public hearings into the entire drought fiasco begin tomorrow. As we report elsewhere in this paper, the submission from the National Rivers Authority is a savage indictment of Yorkshire Water's management. The evidence suggests Yorkshire was in trouble even before the dry weather began a year ago.
If there is a predator waiting to pounce on the company, it could hardly choose a better moment than now. The company is vulnerable, leaderless and friendless. The irony is that Yorkshire's very incompetence may save it: things are still so bad that there could be yet another water shortage this summer. The unquantifiable financial risk could deter any bidder.
LAST September I wrote in this column how amazing it was that not a single head had rolled at United Biscuits despite three embarrassing profit warnings in a single year. The shares had sunk from more than 400p in 1993 to 260p. The incoming chairman, Colin Short, announced himself 100 per cent behind his chief executive, Eric Nicoli. "UB is crying out for fresh ideas and fresh blood," I wrote then.
Six months on, nothing has changed. UB has just reported a dire pounds 101m of fresh losses. The shares are down another 30p despite a strongly rising stock market. And Mr Short is still loyally 100 per cent behind his chief executive.
United Biscuits seems unable to tackle its problems. In biscuits, margins continue to crumble despite the advantage of a blue-chip brand, McVities. In snacks, market share is sinking and the 1993 purchase of Derwent Valley Foods - once a money-spinner with its Phileas Fogg brand - has been a disaster.
Investors now have every right to demand management changes. If Mr Short continues to stand by Mr Nicoli, who has had a more than generous five years to turn round the company, a time may come when they will both have to go.
Proud to be late
JOHN MAJOR wants "to shame" late payers into settling their bills more promptly. The idea is to force companies to publish details of their record in paying their suppliers. The theory is that bosses will be embarrassed into reforming themselves when they appear at the head of league tables of late payers.
Perhaps Mr Major should have discussed the idea further with his deputy, Michael Heseltine - a man who has run his own business and understands the realities of the boardroom as well as the cabinet office. It was Mr Heseltine who only last month was boasting about how he used "to string along the creditors".
For the truth is that paying suppliers as late as possible is not regarded as a sin but as a virtue in many business circles. Finance clerks learn at their mothers' knees to do nothing until at least the first reminder letter and sometimes not till the lawyers are banging on the door. A million MBA students have been schooled in the tremendous advantage to cash flow of accelerating payments in and delaying payments out.
Mr Major's idea could backfire. Many business leaders would be secretly rather proud to head his league table of shame.
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