Outlook: There must be ways to spend Niall's cash
Wednesday 24 February 1999
Intriguingly, the amount Unilever is paying out by way of special dividend roughly equates to the loss of value ICI shareholders have suffered since they acquired Unilever's unwanted bits and pieces. Since many of these shareholders are one and the same, it ought to be asked who really gained from this exercise in corporate restructuring - apart, that is, from fee- driven investment bankers and lawyers, which goes without saying. But that's another story.
More seriously, what's happened to make Mr FitzGerald, who wanted to spend the money on his business, change his mind? Acquisition prices are just too high, he says, even in the Far East, where private owners have yet to adjust their expectations to the new market conditions. So it is no to Heinz, no to Reckitt & Colman, and no to just about everything else Unilever has been linked with over the last two years.
Mr FitzGerald's decision raises two issues. The first is the level of asset prices and whether they are still too high to tempt all but the most foolhardy investor. Mr FitzGerald clearly thinks they are. He has been looking for businesses in emerging markets, or which have the capacity to expand in those areas. But the multiples attached to potential targets are prohibitive, even before a control premium is added.
In this respect, the market is right to applaud him for returning the cash pile to investors, rather than squandering it on some ill-conceived management frolic. There is, however, a more disturbing issue. If a company like Unilever cannot find a sensible way to invest the money after two years of scouring the globe, how are our investment institutions to manage it?
After so many years of share buybacks and special dividends, institutional investors are already awash with cash. The problem is compounded by the drying up of the new issues market, which is all but dead. It is a terrible indictment of the stock market that in the last year or so, one of the few ready homes for institutional money has been the re-weighting of tracker funds in expanded FTSE companies like BP-Amoco and Vodafone AirTouch.
There are several possible remedies. One is for fund managers to start looking at neglected small and medium-sized stocks where values have been hammered by the quest for size. Institutional investors are also going to have to start thinking much more seriously about the business start- up market. Much of what passes for venture capital in Britain - buyout activity - is little more than financial engineering.
But perhaps most important, in an age of low or negative inflation, both investors and companies are just going to have to get used to much lower rates of return than they have enjoyed in the past.
- 1 Benedict Cumberbatch says Hollywood is better for black British actors
- 2 Man who held up 'hire me' sign at Waterloo station returns a year later with 'I'm hiring' sign
Rowan Atkinson to sell £10 million McLaren 'supercar' he crashed into a tree and a lamppost
UK weather: Snow to fall in the coming week with sub-zero temperatures to last until early February
Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
US blames Russia after rocket attacks in Ukraine kill at least 30
Warriors in ancient Iraq suffered Post-Traumatic Stress Disorder more than 3,000 years ago, say researchers
Nigel Farage: NHS might have to be replaced by private health insurance
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
George Galloway condemns 'racist, Islamophobic, hypocritical rag' Charlie Hebdo at freedom of speech rally
British Muslim school children suffering a backlash of abuse following Paris attacks
Islamic history is full of free thinkers - but recent attempts to suppress critical thought are verging on the absurd
iJobs Money & Business
£30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...
£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...
Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...
£16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...