ALEX BRUMMER: Coronavirus pandemic heightens urgency of raising cash, paying down debt and simplifying shape of firms
There should be no real surprise that Centrica, Vodafone and Walmart – by selling Asda – are all choosing to simplify operations and raise cash by splitting off valuable assets.
With the exception of the disposal of Centrica’s North American offshoot Direct Energy for £2.9billion, all these deals have been on the cards for some time.
The pandemic heightened the urgency of raising cash, paying down debt and simplifying the shape of firms. The latest deals come hard on the heels of Unilever’s decision to hive off its PG Tips and Pukka tea operations in preparation for disposal.
Feeling the heat: The British Gas owner spent decades seeking to transform itself into a global energy giant
Most desperate to raise cash is Centrica. The British Gas owner spent decades seeking to transform itself into a global energy giant with non-regulated enterprises compensating for the domestic squalls of being a utility firm in the UK.
The sale of its US energy arm to America’s NRG is a necessity for chief executive Chris O’Shea to deal with a debt mountain, pension fund deficit and combative trader unionists fighting redundancies. Its US operation has long been a diversion.
It is fortunate not to leave the US with two black eyes, as happened when Scottish Power disentangled itself. It had been expected that the first big disposal for Centrica would be its North Sea oil exploration. The collapse and volatile recovery in oil prices since the start of the pandemic means no one is in a rush to buy oil assets.
Since taking charge, O’Shea has moved rapidly. Some 5,000 staff are being axed and the dividend is suspended.
The foundations of British Gas were kicked away by the ill-thought-out regulation of the energy price cap. The company responded by introducing more competitive tariffs but it was too late to prevent the loss of 226,000 more customers in the first half of the year.
The surge in the share price by 17 per cent may also recognise a domestic opportunity, as Rishi Sunak’s 5K vouchers for homeowners who climate-proof their homes is a great opening for British Gas engineers – as long as they haven’t all been sacked.
Vodafone boss Nick Read is pressing the accelerator with the decision to sell Vantage, the towers infrastructure operation, which has a potential enterprise value of £15billion or so.
Proceeds won’t be anything like that once the new entity has been loaded up with debt and if the British mobile champion decides to hold on to a stake.
Demerging the towers, including those it shares in the UK with Telefonica, is sensible. The new structure will encourage competitor mobile firms to share towers and masts rather than duplicate networks.
Investors in Vodafone will doubtless be bought off with some of the proceeds, be it cash or shares. But it is unwelcome that Vodafone has decided to float the towers in Frankfurt rather than London.
Vodafone advisers argue that this is sensible since the biggest part of the network is in Germany. No one should buy into that. Vodafone is a company with a great British heritage, a spin-off from UK conglomerate Racal and a pioneer in cellphone technology. The London Stock Exchange is the market with the deepest liquidity in Europe and home to dozens of companies, from all around the world, which earn their living overseas.
Choosing Frankfurt over London after the Wirecard scam and Volkswagen emissions scandal – big stains on Rhineland-Westphalia capitalism – is unworthy.
Nick Read and Voda’s departing Dutch chairman Gerard Kleisterlee should think again or risk a serious revolt from dissatisfied investors who marked shares down.
Efforts by Goldman Sachs’ disco-loving chairman David Solomon to broaden the earning base of the investment bank by focusing on savings and wealth management have not been helped by the 1MDB scandal in Malaysia.
The bank earned a fat £476m fee for arranging a £3.6billion loan from a previous Malaysian government. Much of it disappeared into fine art, luxury properties in New York and London and financing the movie The Wolf of Wall Street.
Goldman has long resisted any suggestion of guilt but has now ponied up £3.1billion to Kuala Lumpur authorities to settle the outstanding court cases.
Just as well that it has had a record-breaking trading performance in the pandemic.