Do you remember 2006? The Queen turned 80, Steve McClaren became the manager of England’s football team and investors were obsessing over speculation that Gazprom, Russia’s state-controlled energy giant, was about to bid for Centrica, the owner of British Gas.
The deal never happened, of course, but the tale wasn’t idle gossip. Gazprom executives created the excitement by saying an acquisition of Centrica was being “analysed and investigated”, a statement that sent the UK company’s shares up 25% on one day in February.
Cautious voices warned that it would be absurd for the UK to entrust ownership of its largest energy supplier to a company which, for practical purposes, is an arm of the Russian state. At roughly the same time, remember, Gazprom cut off gas supplies to Ukraine.
But the UK prime minister of the day was relaxed. Here’s the FT on 25 April 2006, a day after Gazprom’s deputy chief executive had met then-trade secretary Alan Johnson in London: “Tony Blair has ruled out any possibility that UK ministers might actively seek to block a future bid by Russia’s Gazprom for Centrica.” The priority, apparently, was to face down “economic patriotism”.
The stance was astonishing at the time. It has not improved with events, let’s say.
Conviviality’s messy sums
Damned tax bills always land at a bad moment, eh? Just ask Conviviality, the acquisitive parent of the off-licence chains Bargain Booze and Wine Rack plus the Matthew Clark drinks wholesaler. A demand for £30m from HM Revenue & Customs, due by the end of this month, has dropped through its letter box. The sum equates to slightly more than half this year’s projected operating profits.
Or has the bill only just landed? One suspects not. Conviviality’s stock exchange statement merely said the liability had been “identified” on Tuesday. If that suggests Conviviality’s financial controls are a mess, so did last week’s warning that profits will be 20% below forecasts. One cause was “an arithmetic error,” which translated as a £5m mistake in a financial model that went unnoticed.
Last week’s confession of amateurism crashed the share price from 300p to 100p. The latest calamity prompted a suspension in trading in the stock. The tax payment, said Conviviality, “has created a short-term funding requirement”. It needs to talk to HMRC, its banks, credit insurers, suppliers and creditors – and, presumably, its auditors KPMG and its adviser Investec.
Whatever happens, the chief executive Diana Hunter and the chairman David Adams, in their posts since flotation in 2013, will surely be out. A week ago this was a £500m company, with £1.5bn of annual revenues. Even by the exciting standards of the junior Alternative Investment Market, not spotting a £30m tax bill is extraordinary. Inquiry needed.
Thin reasoning behind Prudential demerger
What is the problem the Prudential is trying to solve via demerger?
A separation of the UK and European business, to be branded M&G Prudential, from the faster-growing Asian and US business, which will keep the main Prudential name, has been rumoured for ages. But, when the moment arrived, the business case sounded thin.
The idea, supposedly, is that a liberated M&G Prudential will burst into the spotlight as a UK national champion of fund management and savings and investments. It won’t, for example, have to compete with the Asian end of Pru for capital since it will a separate company.
Hold on, though. M&G hasn’t been obviously held back by the current structure. It’s doing fine, and has done for years. As for competition for capital, are you sure? The Pru’s full-year figures for 2017 showed a surplus over regulatory minimums of £13.3bn. That seems enough to fund expansion in Asia and get bigger at home. Indeed, the steadier UK operation could be seen as useful ballast in the years when the go-go east turns volatile.
The group denies the split is an exercise in “regulatory arbitrage,” or a way of placing the Asian and US operations beyond tough European solvency requirements. Fine, but the only other factor seems to be pressure from those big shareholders who prefer to arrange their investments into neat buckets. An Asian offering (with a heavy serving of the US) could be deemed tidier than one where the UK is part of the mix. In City jargon, the Pru labours under a “conglomerate discount.”
Maybe it does – the 6% bounce in the Pru’s shares suggests some truth in the idea. All the same, a demerger seems like a lot of fiddling at a moment when the group is enjoying some of the best years of its 170-year life.