Life may get tougher for the toffs at Pearson
Sunday 17 December 1995
Instead Lord Blakenham, the chairman and chief executive, didn't even turn up for the meeting with City analysts. And when Pearson used the occasion to announce the appointment of three new executives to the boardroom - men supposedly going to revitalise the aging and ossified executive ranks - not one of them actually put in an appearance.
I can't remember a time when the City wasn't a tiny bit peeved with Pearson. The image remains of blue-blooded chaps - ex-merchant bankers almost to a man - paying top dollar for a collection of delightful assets and then sitting elegantly and inactively on top of them. Pearson may now have put aside the most egregious of its toys - Chateau Latour and Royal Doulton to name a couple. It may now be more or less concentrated on media assets (if you forget its stake in Lazards and stretch a point to call Madame Tussaud's media). But for all these changes, the top management have yet to shrug off the label of gentlemen amateurs.
Some investors are starting to get impatient. Last week's warning won't help one bit. The shares plunged 49p on the day, wiping 7 per cent from Pearson's stock market value. They have seriously underperformed the stock market for two years now. Analysts meanwhile are busy downgrading their forecasts for 1995 and 1996.
Pearson's executive director ranks must be the most petrified in corporate history: they haven't changed in a decade. The five executive directors have limited experience of running operating businesses. Four of them are ex-merchant bankers. Two are members of the founding Cowdray family. The non-executive directors include some highly talented people. But again, not one of them is directly employed in the media industry. The latest appointment to their ranks hardly inspires confidence: yet another Lazard's merchant banker.
Pearson is screaming for fresh blood. The board appointments last week of Greg Dyke and David Bell, heads respectively of Pearson Television and the Financial Times Group, are a long overdue step in the right direction. More could and should be done. Huge tracts of the Pearson empire are still unrepresented in the boardroom. Addison-Wesley Longman, the textbooks business, is one of the biggest contributors to group profits, yet has no representation. The trouble is that Pearson has nine operating units - too many for all of them to have boardroom representation. And its categorisation of its interests into three sectors - information, entertainment and education - is unfortunately bogus. There are no actual divisions, no actual divisional heads. It is an accounting conceit to give logic to a far from logical management structure.
Pearson's head office is not that slim. The HQ in Burlington Gardens employs 100 people. There are also offices in New York and Tokyo. The five executive directors cost pounds 2.2m a year in wages alone. Lord Blakenham declines to divulge the total central overheads at Pearson, but I'd be surprised if there was much change from pounds 25m a year - not insignificant in a group making less than pounds 250m in operating profits.
If Pearson has a raison d'e^tre, therefore, it must be that there are more than pounds 25m of annual savings and synergies to be exploited by combining nine different businesses under a single umbrella. So far, however, the evidence for this is pretty meagre. Lord Blakenham and his colleagues need to demonstrate they are adding value to the group if they are to quell calls for more radical change in Burlington Gardens.
You have been warned
IT IS decision time for shareholders in Amec. The closing date for Kvaerner's pounds 360m bid is 1pm tomorrow. The outcome still hangs in the balance. On the one hand Kvaerner has built up a useful stake - 26 per cent at the last count. On the other hand, Amec has managed to woo several key institutional shareholders, notably M&G, which has 8 per cent. Phillips & Drew Fund Management could probably swing the battle either way with its 14 per cent stake.
If the battle hung purely on Amec's track record, there would be no contest. Kvaerner would walk it. Amec shareholders have suffered disappointment after disappointment. Those who subscribed for new shares at pounds 2 a pop in the 1991 rights issue feel justifiably let down. Until Kvaerner came along, the shares were trailing at less than 70p.
Amec under its chairman and chief executive Sir Alan Cockshaw has made mistake after mistake. It made disastrous forays into the US, Portugal and France. It has had to make a raft of write-downs on property assets. Profits have been stagnant. The dividend hasn't been raised since 1992, when it was slashed by two-thirds.
But past management is less of an issue than it might be. Sir Alan, who to put it kindly has as many detractors as fans, is shortly to become non-executive chairman. Peter Mason from Balfour Beatty arrives as chief executive next month.
The issue is really about price. No one doubts Amec is into a recovery phase. The only question is how big the recovery is and how quickly it arrives. The company has shot itself in the foot here. Its PR advisers were last week rapped by the Takeover Panel after leaking an unofficial profits forecast. The episode has seriously damaged Amec's credibility. It now looks like it doesn't have the courage of its convictions to make a proper forecast.
True, the bid looks cheap in some respects. Amec has some excellent businesses. And the Amec camp is busy arguing that the pounds 360m price tag looks laughably small beside Amec's pounds 2bn in annual revenues.
Unfortunately the last time someone put precisely the same argument to me was to persuade me to tip - embarrassing this - Trafalgar House. That was two years ago. Surely, I was urged, its revenues of more than pounds 4bn made it an attractive gamble when its stock market value was just pounds 1.2bn. Our cover story this week illustrates the hollowness of that argument.
The Trafalgar House saga stands as a terrible warning to shareholders considering giving Amec one more chance. It will be lucky if it is still an independent company by teatime tomorrow.
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