There are all sorts of factors that influence my decisions as to whether or not to buy shares in particular companies and the length of time I am prepared to hold them.
In December 1999, for example, I was struck by the relatively low price-earnings ratio for Allied Domecq (9.1) compared with other companies at that time in the “beverages” sector such as Diageo (16.3) and H.P. Bulmer (13.1).
As well as its spirits division with brands including Ballantine’s whisky and Beefeater gin, Allied Domecq also owned the biggest coffee and donut chain in the world (Dunkin’ Donuts) plus Baskin-Robbins, the world’s largest ice cream franchise operating in over more than 40 countries.
I thought Allied would be a good investment so my self-invested personal pension scheme (SIPP) bought Allied shares for 292p each in January 2000. I hoped that Allied would spin off or sell its donut and ice cream business or that the company would receive a takeover bid with a predator also performing the split.
A pure spirits business might have attracted a higher stock market rating with investors being able to choose which company to back. In much the same way Lonrho split in 1998 concentrating its mining interests, demerging its African trading interests into Lonrho Africa and changing its name to Lonmin.
Lonrho shareholders thus became owners of shares in two separate companies and they could therefore choose to continue with an investment in either or both companies. Lonmin’s shares, which were around about 329p each in early January 1999 had risen to 970p by December 2000, whereas Lonrho Africa (a much smaller company)saw its shares fall from 55p to 17.5p in the same period.
My personal pension scheme had a shareholding in Lonrho and following the split, retained its Lonmin holding. but In April 2001, however, I sold its the holding in Lonrho Africa for 14p per share.
Gerry Robinson became non-executive chairman of Allied Domecq in April 2002. Sadly, in spite of being the star of the BBC television business advice series I’ll Show Them Who’s Boss, Robinson did not announce plans to demerge the non-drinks business. Had he done so I would have increased my shareholding.
On a number of occasions I contemplated taking some profits on my Allied holding when the shares were 450p in 2002 and more than 500p in 2004.
Fortunately, I held on to the shares. On April 5 Allied announced that its directors were in “early stage” discussions with “Pernod Ricard, which is working with Fortune Brands, regarding a potential offer for Allied Domecq by Pernod Ricard”. The announcement went on to state that “there can be no certainty that an offer will ultimately be forthcoming.”
Allied’s shares, which were 537p per share before the announcement had risen to 643.5p by April 8. Hopefully, rival bids will emerge and a successful bidder will spin off the non-drinks business.
Another company that might have benefited from a spin-off was Boots. In September 2003, I mentioned in the FT that, with Richard Baker as new chief executive, perhaps Boots could do a deal with Reckitt Benckiser as both companies had complementary over-the-counter non-prescription medical treatment divisions. Crookes Healthcare, for example, owned by Boots, owns such well-known brands as Nurofen, Clearasil and Strepsils while Reckitt owns Disprin, Lemsip, Dettol and Gaviscon.
If Boots could have made use of Reckitt’s marketing and promotion expertise the Crookes products might have greatly increased worldwide sales.
For some time I contemplated a possible “buy on turnround prospects” for Boots, but did not buy as Crookes seemed welded to the Boots culture.
Then on April 7 this year Boots announced “the proposed sale” of its over-the-counter medicines business. Too late for me. The news looked like an act of desperation.
I feel the sale proceeds will now be of less benefit to shareholders than if the company had spun off its medicines business as a separate company to existing shareholders thus allowing them to retain a stake in what could be a very an attractive medicines business.
Perhaps then a another Philip Green type of person could have “rescued” the rest of Boots, bought W.H. Smith and merged the two, making property profits and establishing a new “feel-good” chain with stores containing a pharmacy, photo processing, coffee/juice/ice cream section plus increased ranges (and order facilities) for books, DVDs and CDs etc. – plus a wide range of magazines, stationery, cosmetics, medicines and healthcare products – and with longer opening hours.
Kevin Goldstein-Jackson is a private investor.
He may have an interest in companies and strategies mentioned.
