The bewildering background drama of chief executive Norman Lamont, taking centre stage at the heart of Cable & Wireless International’s attempts to rescue its battered share price from the undertow, has meant that the business itself, in its mediocrity, has become the constant.
The lurid headlines about the collapse of Hong Kong’s biggest company, Cheung Kong, which holds a controlling stake in C&WI, undermine the authority of the company, which is not much different from any other unregulated overseas investment company or “fundamentals” fund manager.
C&WI remains in abject decline. At the end of this week, analysts will relish a ninth consecutive year of declining earnings. There is no prospect of a rebound for the time being, regardless of Lamont’s attempt to divert attention away from the corporate governance issue by focusing on the value of its asset.
C&W, which lost its status as one of the City’s big five institutions last year, is off-balance sheet in its shareholding, by which each trust owns a little more than 15% of the company. But the picture is more complex than that. Cheung Kong is the biggest shareholder, with 31.5%, the Empire Group, chaired by Gordon Brown, and Marshall Wace, in third place with 20%. Then there are three companies holding shares: Sir Lucian Freud’s Christopher Wren family trust; the Queen’s Kering, the company controlled by Francois Pinault, and the Cavendish Foundation, controlled by Sir Reginald Hoare.
The Cavendish is unlikely to realise its investment. These are illiquid investments, secured by bonds rather than cash. With Cheung Kong blocking Lamont’s approval of the remuneration policy, a rival may come in with a competing offer and wipe out the Cavendish’s investment.
The City cannot afford to see the default of a C&WI refinancing, the default of the assets, or the likelihood of further discounting in the share price. Stock will sell for a tenth or a quarter of the value when its valuation ends.
Sir Sinclair Schuller, the C&WI chairman, must take drastic action. The savage cuts in earnings cover the deepening investment operation in India and its underperforming USA operation. Shareholders must be convinced that Lamont is a man in control. The more he talks, the more discredited the company becomes.
Scottish Power makes gains
Scottish Power has completed the second stage of its strategic review in its effort to become financially independent of parent RWE, with the announcement on Friday that it will merge its retail business with rival EDF’s. What a sharp break that will be.
A successful merger would continue the same trend sweeping the utilities sector as shareholders wake up to the profits they can make in a mature and declining business. The philosophy is now not to be taken over by foreign predators or bailed out by shareholders to prop up weak earnings. A bid by Centrica, for example, would make shareholders miserable because they see limited growth in UK energy usage for many years to come.
Scottish Power is only a quarter-way through its review, but evidence is emerging of a much more proactive outlook. The company said it has raised annual group earnings to £2.0bn from £1.3bn, while it has cut debt by £1.2bn from a year ago to £7.9bn. Scottish Power’s renewable capacity is almost all from wind farms, but last year the company produced more electricity onshore than offshore, thanks to its infrastructural advantage. The first phase of its review saw the takeover of Intu for £1.7bn. By March the plans are expected to be in place to enable Scottish Power to become “widely recognised” as “the UK’s leading integrated energy retailer”.
Electus enters US waters
TV production company Elisabeth Murdoch’s Shine Group has been secretly funding a raft of US shows since March, keeping news of their existence under wraps. However, Reveal’s revelations now allow any agency or show to blast out titles such as, War and Peace: America’s Costliest Season on Facebook and Twitter. It’s not possible to announce talent fees or commissions, of course, but shows like BBC4’s Orange is the New Black are proof that a creative and international outlook isn’t essential in good shows.