Outlook: Norman conquest

THERE WERE many promises of instant wealth during the South Sea bubble of the eighteenth century. Investors bought rising stocks no matter how outrageous their design, anticipating lines of idiotic speculators to form behind them eager to gobble up the stock at an even higher price. Financiers, legit and bogus alike, were able to raise money with ease for such preposterous business propositions as "for the trading in hair" and "for a wheel of perpetual motion". Then there was the all time classic of an enterprise "for carrying on an undertaking of great advantage, but nobody to know what it is". It defies belief that anyone could have thought of investing in such a thing, but they did.

These days, of course, we wouldn't dream of it, would we? Everyone is far too grown up, mature and worldly wise to fall for such nonsense. Or are we? The extraordinary rise yesterday in the share price of a little known Manchester leather company called Knutsford suggests strongly that even now at the turn of the millennium we don't seem to have learned much from the history of financial bubbles.

Just to recap, a heavy weight band of property and retail entrepreneurs, including Archie Norman, chairman of Asda, have announced a management buy in with the purpose of using the company as a vehicle "for identifying, acquiring and developing undervalued businesses operating in areas within which the team have amassed a great deal of experience". If you think this sounds suspiciously like an undertaking of great advantage, but nobody to know what it is, you'd be right. To be fair on Mr Norman and his fellow travellers, they are not at this stage asking asking investors to stump up any money for their asset stripping endeavour, but that hasn't stopped a frenzy of speculative anticipation.

Mr Norman and colleagues are buying their shares at 2p each. In the stock market, speculators chased the price up to an astonishing 252.5p yesterday, and although it later fell back sharply, the shares were still 150p by the close. If this price holds, Mr Norman ends up with a stake valued at more than pounds 37m, this for an outlay of just pounds 495,000. For the others, with larger stakes, the bonanza is greater.

Rarely has there been a more extreme example of the stock market's penchant for backing the man, or in this case, the four of them, rather than the underlying business. That the talent alone of these four characters could be worth this sort of money - at the peak yesterday, the stock market was putting a post transaction value on Knutsford of pounds 700m, this for a company with net assets of just pounds 5.43m - seems unlikely in the extreme, despite the outstanding record of all four in value creation. But even if it was, the valuation is based on a false premise. Think about it. Mr Norman wants to use Knutsford to buy undervalued assets. But unless the world has begun to lose all reason, nobody is going to want to sell such assets for overvalued paper.

Things may be bad at Marks & Spencer, Somerfield, Sainsbury's and Storehouse, but shareholders in these companies will not be prepared to give away pounds 700m of value to Mr Norman and his merry band of financial engineers, however desperate their need for fresh executive talent.

The Mirror yesterday epitomised the frenzy by recklessly urging its readers to "beg or steal" the money to buy shares in Knutsford, so impressed was it with this line up of talent. It had better hope that not many of them did. This is a spivvy little endeavour worthy of the worst the high rolling 1980s could offer. Mr Norman risks ruining an outstanding reputation as a business leader with his involvement.

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