Outlook: Allied may have to file for divorce
Wednesday 12 November 1997
The market's desire for change is understandable. You would have to look pretty hard to find a worse corporate performance than Allied Domecq's over the past five years, a period in which profits have stagnated, shareholders' funds have dwindled by a fifth and the share price, down 20 per cent in absolute terms, has underperformed the rest of the market by more than 50 per cent.
It is quite some indictment of one of Britain's biggest companies that its management can stand up and boast that its return on capital is now marginally ahead of its cost. Let's face it, this is hardly fling-your- hat-in-the-air good news.
Sir Christopher none the less managed to call it a turning point yesterday, even if he did look uncomfortably like a man who could think of better ways to wind up a previously successful career. For someone who created so much shareholder value by breaking up Courtaulds and who has overseen the rise and rise of Reuters, the shilly-shallying over what to do with Allied has left him looking tired and out of touch.
Despite the fanfare, yesterday's figures were nothing very special. Strip out the pounds 47m benefit of unwinding an unfavourable beer supply agreement with Carlsberg Tetley and underlying profits were down a bit in spirits, up a bit in pubs. Scratch the surface and this is still a group going steadily sideways.
But the figures are a sideshow. More important yesterday was the tacit admission that the merger of Guinness and GrandMet to form Diageo means Allied can no longer afford to sit around hoping everything turns out all right in the end. Allied may sell more hard booze than anyone other than Diageo, but its brands are second division and its claimed global spread is so much wishful thinking. If it is to stand a chance of competing with its new rival it needs to find a partner and quickly. Demerging may in itself do nothing for shareholders, but if a quick divorce is the only way to get someone else up the aisle, so be it.
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