Outlook: We can't sell all of Britain to foreigners
Wednesday 08 April 1998
In any case, brands these days are international commodities best owned by those most able to exploit them. Outside the US, for instance, that most American of hotel chains, Hilton, is owned by a British company, Ladbroke. And so is Smith and Wesson, the gun most readily associated with cowboy and, through Dirty Harry, modern day America.
Unilever owns Brazil's best known ice cream brand and yesterday Imperial Group became the proud owner of Drum, the world's most famous roll-your- own tobacco label. Moreover, many British companies and organisations seem positively to thrive under foreign ownership. Investment banking in the City is now almost wholly foreign owned and the City has never been more successful as a financial centre.
From this perspective then, foreign ownership of our assets and means of production not only doesn't matter, but it might actually seem positively beneficial.
However, few would disagree with the proposition that it would matter if everything became foreign owned. In these circumstances, the country would become answerable to far off decision makers with no underlying allegiance to or vested interest in our people, institutions, culture or prosperity.
In the sanitised world of international finance, where capital finds its most efficient use and location, it could be argued that this would be a good thing since the country would become governed only by sound economics, freed from sentimentality and history. But we all know that in the real world it doesn't work that way, and when the choice is made between a job on Teesside and one at head office back in Frankfurt, there won't be much doubt about which goes first.
So there is a sense in which it does matter. This is more especially the case if the country is failing indigenously to create new brands to replace the tired old historic ones being bought up by foreigners. On this count, we are not doing brilliantly. There are some - Psion handheld computers and Dyson vacuum cleaners are outstanding examples - but there are virtually no internationally recognised brands to have emerged from Britain in the last 40 years to compare with BMW, Coca Cola, Microsoft or Intel.
Unjustifiably protected for so many years by family, pomposity, and an arcane, semi corrupt capital structure, the Savoy thoroughly deserves to fall into foreign hands. Blackstone is much better placed to exploit the brand internationally and domestically than would have been possible under present arrangements. All the same, Sir Hugh Wontner must be turning in his grave. The Savoy was never meant to be owned by rich Americans; its purpose was for the fleecing of them.
Brighter future for Thorn
HEAVEN knows EMI has its problems at the moment, what with having to pay-out millions to Jim Fifield every time the clock strikes twelve, but life there is a bed of roses compared with Thorn. Since the rentals group was split from its more glamourous music industry sister in 1996, Thorn has delivered nothing but bad news. The shares have been an absolute stinker.
Perhaps now there is at last light at the end of the tunnel. Five months into a strategic review, the company has been bounced by the stock exchange into admitting an approach from a mystery bidder. Oh, and by the way, it is selling its troublesome US business as well.
All of which provides some comfort to wounded shareholders, but only crumbs. The demerger of EMI from Thorn has been disastrous from a shareholder value perspective. Those who continue to urge Gerry Robinson at Granada to demerge his media and leisure interests, take note. While everyone waxed lyrical about the great opportunities for EMI when it was shorn of its dullard retail business, few said too much about what Thorn was contributing to the party.
Renting out TVs, videos and fridges may be a declining market but its does throw off huge amounts of cash. Just as Granada uses the proceeds from its high street rentals business to invest in the high growth media and leisure operations, the old Thorn-EMI used to use rental cash flow to pump into the higher return music business.
After the demerger, the previous Thorn made the fatal mistake of pumping the cash back into the declining rentals business. It added stores and products in an attempt to maintain the sales line and failed. Now a new chief executive is closing stores, investing only what is absolutely necessary and running the business for cash.
All this will not be lost on potential financial buyers, who see Thorn as an under-valued, cash generative asset. It will also not be lost on Thorn's US quoted rivals, which have not been de-rated as harshly as Thorn, partly because US investors tend to take a more philosophical view of litigation. For them, Thorn looks cheap.
Profit targets hold BP over a barrel
THE STOCK MARKET has been saying it in BP's soaraway share price for a year or more. Now John Browne, chief executive, seems to be confirming it; BP has become such a finely tuned, well-managed goliath of a business that it can drive profits ever higher irrespective of what happens to the oil price. The new financial targets Mr Browne has set his managers foresee a $2bn increase in profits over the next five years even if the oil price stays at $14 a barrel.
This is the equivalent of a near 50 per cent improvement in earnings, which by any yardstick would be an impressive performance. It will also prove extremely lucrative for Mr Browne and his fellow executives who will realise pounds 10m in long-term bonus shares (not to mention the annual bonus) if they come anywhere near.
But hold on a mo. On closer inspection the target is less of a fixed goal and more of a moveable feast. BP made $4.6bn last year but it will not necessarily have to make $6.6bn to hit the target. Why? Because what Mr Browne is actually promising shareholders is that profits will be $2bn higher than they would have been had the oil price been $14 last year (in which case BP's profits would have been nearer $3.6bn).
Even so, not many companies set themselves up to be shot down like this. British Airways is the only other blue-chip that readily comes to mind as having publicly set itself a profit target - in BA's case pounds 1bn by 2000. So although BP's targets are not quite as challenging as they seem at first glance, nor the task of executive bonus earning quite so onerous, the company should nonetheless be applauded for its courage in sticking its neck out.
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