Outlook: Forget the ethics, look at the money

ETHICAL INVESTMENT doesn't pay, it would seem. The tobacco industry is still many people's favourite bogey, a medically proven killer and sometimes liar, but following settlement of most outstanding litigation in the US, boy has it also become the City's favourite glamour stock.

Most astonishing has been the transformation brought about at BAT Industries. For years, BAT's chosen strategy was aggressively to diversify away from the dreaded weed, taking the company into a series of dull but reliable alternatives. Fine, that was the accepted way for companies in pariah industries in those days.

However, even after conglomerates started to become unfashionable, BAT largely refused to accept the demerger and divestment case, insisting that no value would be created by going this route. An ultimately fruitless breakup bid from Sir James Goldsmith and associates failed to shake BAT's faith in the multi-faceted business group.

It's hard to be definite about when the scales finally fell from the company's eyes, but under the present chairman, Martin Broughton, BAT has embraced the stock market's favourite mantra of "demerge, focus and consolidate" with a success which almost defies belief. From beyond the grave, Sir James will be toasting his own foresight. What has been accomplished over the last year is a corporate restructuring of textbook perfection and eloquence.

First came the demerger of BAT's insurance interests and their simultaneous consolidation with Zurich Insurance to create a new pan-European insurance goliath. The merger of the remaining tobacco operations with Rothmans to form a cigarette company on a par with Philip Morris of the US completes the process. Along the way BAT has created untold shareholder value.

At the end of August, just before the insurance demerger, BAT Industries shares were trading at 500p each. Today shares in British American Tobacco alone are worth 626p. To that must be added the value of a share in Allied Zurich of 987p. The effective rise in value has therefore been more than three-fold. Few demergers and subsequent consolidations can be said to have paid off so handsomely.

The industrial logic of BAT's latest piece of restructuring, the merger with Rothmans, seems hard to fault, though the creation of a company with 16 per cent of the world cigarette market and dominance in 55 countries makes the mind boggle. The only obvious fly in the ointment is that in so doing, BAT adds a powerful minority shareholder with 35 per cent of its capital. Persuading the South African Rupert family to take a third of this holding in non-voting stock only partially solves the problem.

At this stage, the two sides speak in unison on strategy and management, but the trouble with big minority shareholders with substantial business interests elsewhere is that they are not always prone to remain that way.

Still, for the time being all is sweetness and light and shareholders must thank their lucky stars that Johann Rupert proved as pliable as he did.

Like most modern trends, the big corporation's fondness for the global mega-merger started in the US. Intriguingly, however, many of the most recent instances were born in Britain - Diageo to create a group with approaching 20 per cent of the world branded spirits market, BTR and Siebe, and BP Amoco. Virtually unnoticed, Blue Circle has also through acquisition accumulated a huge chunk of the world cement market.

Many of these mergers are monopolistic in intent - an attempt to recreate local market dominance on a global scale. But they are also a response to the intensity of international competition as industries become progressively global in nature, and as such cannot be dismissed as entirely a bad thing. From this perspective, they seem more a product of corporate weakness than strength. Certainly we seem destined to see a lot more of them.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Office Manager / Financial Services

£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

Jemma Gent: Year End Accountant

£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

Jemma Gent: Management Accountant

£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

Beverley James: Accounts Payable

£22,000 - £23,000: Beverley James: Are you looking for the opportunity to work...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower