Outlook: There must be ways to spend Niall's cash

NIALL FITZGERALD, chairman of Unilever, was in defensive mood yesterday as he admitted defeat in his search for an alternative, profitable use for the pounds 5bn he banked when he sold Unilever's speciality chemicals division to ICI. Rather than spending it on growth, whether organic or acquired, the money is instead to be returned to shareholders.

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.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
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

Ashdown Group: Client Services Manager - Relationship Management - London

£30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...

Recruitment Genius: Credit Controller / Customer Service

£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...

Recruitment Genius: Tax Assistant

Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

Recruitment Genius: Outbound Sales Executive - OTE £25,000

£16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

Day In a Page

Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore
'I'm gay, and plan to fight military homophobia'

'I'm gay, and plan to fight military homophobia'

Army general planning to come out
Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
America: Land of the free, home of the political dynasty

America: Land of the free, home of the political dynasty

These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
A graphic history of US civil rights – in comic book form

A graphic history of US civil rights – in comic book form

A veteran of the Fifties campaigns is inspiring a new generation of activists
Winston Churchill: the enigma of a British hero

Winston Churchill: the enigma of a British hero

A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
Growing mussels: Precious freshwater shellfish are thriving in a unique green project

Growing mussels

Precious freshwater shellfish are thriving in a unique green project