Outlook: Tracker stocks

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The Independent Online
FORGET THE Internet frenzy. What about Internet envy? Spurred on by the guy next door, who's just made a fortune on the net, everyone, seemingly, is wondering how to get in on the action. But it is for those who are already on the world wide web, and yet get no recognition or millions for it, that the present frenzy is most irksome. Among these should be counted a growing number of established publicly-quoted companies with very credible and well developed Internet strategies, but whose share prices come nowhere near reflecting Internet mania valuations.

No wonder, then, that egged on by American investment bankers, Pearson and others are thinking of importing the US innovation of "tracking stocks". The practice has obvious attractions to management. For the first time a "realistic" valuation is placed on their new creations, but they don't, as with an IPO, have to give up management control. They also gain a currency with which to make highly priced acquisitions.

All well and good from a management perspective, then. Whether it is also such a great idea from an investment perspective is another thing. In the past, investment in publicly quoted companies has always worked on the not unreasonable premise that shares confer legal rights of ownership and control. Neither of these things are promised by the synthetic, or virtual, security of a tracking stock.

Furthermore, the potential for conflict of interest in a company with one management but two sets of shareholders are obvious and extreme. Companies that believe they have a winning Internet strategy would serve investors better by convincing them of it, rather than messing around with the complicated, vainglorious nonsense of tracker stocks.

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