Company News
1 December 1984(1984 Dec) – It cannot come as much surprise to learn that Motorist Discount Centre, with some 300 shops selling motor accessories, has gone into receivership. With the notable exception of Kwik-Save, the northern-based supermarket group, nominal capital commitment to shop fitting is often a sign of a short-term trading philosophy.
The acquisition of Cullens, a long-established family grocers, for around £BM is a classic example of a waste of money. I have no doubt the new owners are credible and enthusiastic, but the cost of buying a loss-making enterprise in a declining sector of the grocery market is unjustified in valuation terms. Collier Menswear, the management buy-out of the John Collier group from UDS, following the Hanson take-over, is another example of the trend for loss-making operations to be accepted in the financial market. The investment market benefits from the many sale-and-leasebacks to raise funds, but it is pertinent to note that while the major multiples sell off their best assets for short-term support, J Sainsbury is only selling obsolete units.
Bargain of the year must be Dixons’ acquisition of Curry’s. Where Curry’s got the idea that a realistic defence to the bid would be to claim they care for their customers beats me. Neither company has much of a reputation for its ‘after care’ and this seems to be relatively common with trading companies which are accountancy toys for top management. Everyone knows that the quality of staff training and attitudes to customers reflects the philosophy of the management!
Close second to a bargain will be Ward White’s acquisition of Halfords from the Burmah Group. In the property market, Woolworth’s sale of prime stores to the Heron Corporation and Rank’s portfolio sale to British Land both make bargains seem expensive, being good examples of how corporate management forgets common sense. The justification for both sales was identical; a single transaction to a known buyer for instant funds. Group valuations are carried out of the basis of a sale of the portfolio as a whole.
In 1971, the Financial Times published my letter about property bonds, in which I suggested that the supply of suitably prime property is too limited to guarantee that the price paid reflects value and not demand, and that a re-sale in the open market would be at a price determined by the few, special purchasers who would fix their own value, not necessary coincident with the opinions of professional valuers. The value of a fund must inevitably be artificial, as the acid test is to try the open market, which makes one think that we are over-obsessed with the need for property and asset valuations. With a number of £30M+ investments hanging around in the market at the moment, dependence on book values must be questionable, but removing the value of assets as a measure of company performance would only shield the truth. It should not be too difficult for major property owners to buy in the expertise required to successfully break up an existing portfolio and it is a reflection of their existing advice that such expertise is clearly not easily recognisable.
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