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Board With No Bottle

26 October 2020

I mentioned in my last blog on the 29th September how the cheapness of our equity market relative to the other global majors was beginning to be evidenced by overseas predatory interest in some of our companies. I suggested that, whilst the UK’s discount remained so wide we should expect that interest to grow, particularly from America.

Not long after that article G4S, the FTSE 250 security firm, found itself on the end of a £3bn cash bid from Canadian security giant GardaWorld. The G4S board is fighting the bid which, it says, significantly undervalues the company. GardaWorld has gone hostile and the G4S board is currently in talks with potential white knight, Allied Universal Security based in Pennsylvania.

On Friday it was the turn of McCarthy & Stone, the retirement home builder and operator. Its shares, like so many others, were languishing in a Covid inspired slough of despond, when US real estate giant, Lone Star, pounced with a cash bid of 115p. A number of our portfolios hold the shares on the basis that the UK’s demographics and lack of sufficient suitable housing for the elderly, should provide the backdrop for significant long-term growth potential.

In July when reporting the M&S interims, CEO John Tonkis stated “We remain particularly excited about our rental offering in terms of its benefits to customers and increased attractiveness to investors.” As you would expect, the Covid impact on the half-year figures didn’t make for great reading but the long-term potential, once we free ourselves from this virus, should be considerable. This view was strengthened by the announcement at the beginning of this month of a joint venture with England’s largest not-for-profit specialist housing provider, Anchor Hanover, for which M&S would utilise five currently held sites and construct 482 premises in the affordable rent, shared ownership and extra care apartment areas. Although margins on this venture are likely to be more modest than the norm, it would speed up both site utilisation and revenue growth.

The response by the G4S and McCarthy & Stone boards displays the gulf between “can do” and “can’t do” management. At G4S they sprang to the company’s defence and are working hard to provide as much value for their shareholders as possible. At M&S they have thrown in the towel at the first sight of an opportunity to escape their responsibilities to shareholders. It feels as if six months of battling coronavirus has caused boardroom fatigue. If companies across the pond think this is reflective of the response they will get when they wave their cheque books at our businesses then we can expect a flood of interest – it must seem like the Christmas corporate sales.

The bid looks as if it was a sighting shot so Lone Star must have been cock-a-hoop when the M&S board promptly recommended it. The market is pricing the shares a fraction above the 115p bid price currently so perhaps there is the possibility of a counter offer. Shareholders deserve it – the board deserves a big fat raspberry!!!

Russell Dobbs FCSI

Chartered Wealth Manager