This fight looks unfair. In one corner stands Elliott Advisors, the UK end of an aggressive $34bn US hedge fund that can often be found telling FTSE 100 firms, such as mining titan BHP and hotelier Whitbread, how to reorganise their businesses. In the other corner is Saga, the insurance and cruise ship firm that is a long way from the big time. The over-50s specialist is valued at a mere £550m these days after a 75% fall in its share price since flotation in 2014.
It’s odd that Elliott wants to bother with a relative minnow, but the purchase of a 5% stake in Saga suggests two things. First, that the activist fund thinks the Saga brand has retained more value than the shares. Second, that it is not interested in the current management’s long-haul strategy of building customer loyalty within a specific age demographic.
Elliott will be more concerned with pressing the break-up question. Do Saga’s two activities, selling car and home insurance and offering holidays, belong under the same roof?
It’s fair to ask. General insurance is a commodity product and the rise of price comparison websites, which all demand commissions, has made it more so. As a specialist insurance brand, Saga might enjoy more success in recruiting customers directly if it were owned by one of the industry’s big beasts. But no insurer is going to buy a rival that comes with £600m worth of cruise ships attached. A split would solve the problem.
Such thinking will sound like heresy to Saga’s board, and the directors are entitled to make the counter-argument that a membership model breeds loyalty and creates opportunities for cross-selling. It’s a reasonable view. But to give it clout, Saga desperately needs a credible boss.
Chief executive Lance Batchelor is on his way out, which was inevitable after two profit warnings and the disappearance of the dividend on his watch. But he’s not due to go until next January, a leisurely departure that plays into Elliott’s hands if it decides to lobby for instant action.
Saga chairman Patrick O’Sullivan needs to hurry up. If he’s committed to the self-help “heritage” strategy, he needs to find a chief executive who will deliver it. Until that happens, Saga looks horribly exposed.
FCA chief Andrew Bailey says Neil Woodford followed the rules – but was the regulator too slow to act?
Andrew Bailey, chief executive of the Financial Conduct Authority, has his line about Neil Woodford and he’s sticking to it: the fallen fund manager appeared to be “following the letter of the rules, but not the spirit”. It’s what Bailey told the Treasury select committee last month, and he volunteered the same analysis at the regulator’s annual public meeting on Wednesday.
The latest airing came with the garnish that if firms prioritise being within the rules over doing the right thing, then maybe the rules themselves require improvement. The UK’s exit from the European Union provides “important context”, suggested Bailey. “It is fair to say that there are aspects of our regulatory approach that may have developed differently had they done so unilaterally,” he said.
Well, yes, that’s obviously true. Woodford listed a few holdings in his Equity Income Fund on the obscure Guernsey stock exchange as a way to stay within the 10% cap on illiquid assets. Left to its own devices, the UK might disqualify Guernsey as an “approved” stock market for liquidity purposes.
Yet it’s too easy for Bailey to point at shortcomings in the rules and firms’ clever tactics. Even on the FCA’s account, the strain on Woodford’s empire was visible long before withdrawals from the £3.7bn flagship fund were blocked at the start of June. Whatever the EU’s formal requirements say, a UK financial regulator is still allowed to prod, cajole and throw its weight around if it perceives a problem.
The still unanswered question is whether the FCA was too slow to act. Clarity on that score would be more useful than the same sermon again.
End of the line for Northern? Not until Grayling is shunted into the sidings
The Northern railway franchise, operated by Arriva and an asset of the German state-owned firm Deutsche Bahn, could be terminated if its performance does not improve, says transport secretary Chris Grayling.
Since Grayling himself may be shunted into the sidings by the next prime minister, the decision may be made by his successor, which could just mean more delay and frustration for the mayors of Greater Manchester and Liverpool, who support termination.
In fact, everything on the railways seems to be on hold until Keith Williams, the expert leading a review for government, completes his report in the autumn. Williams is entitled to take his time, but if Brexit wasn’t happening, the paralysis in decision-making on the railways would be a scandal.
