Urge to purge
Corporate separations more fashionable now than marriages
“WHAT’S UP with all the corporate break-ups lately? Is the age of the conglomerate dead?” That’s what Paul R La Monica pondered recently in a report on CNNMoney – catchily entitled “Hot biz trend: The urge to purge”. Readers will recall the “Urge to merge” was one of the strongest driving forces in the business environment a few years ago. Conglomerates were far more popular than specialists.
After the financial mess in the United States – when new concepts such as “too big to fail” were widely applied to conglomerates like AIG – the trend has taken a hold among companies to focus on what they’re good at and to sell, close or simply give away the rest.
In general, investors like that. And companies that do so find their share prices are usually handsomely rewarded. Currently a number of big guns in the US are in fact again downsizing. ITT, one of the Fortune 500 companies, is in the process of splitting into three. ITT is a kind of industrial conglomerate that makes everything from water filters to night vision glasses for the US defence forces. Sounds a bit like our Bidvest.
A quick look at our top 50 companies in terms of market capitalisation shows there are very few so-called conglomerates left. Probably top of the list is Naspers, with its market cap of R162bn, followed by Bidvest, with market cap of R65bn. It wasn’t always like that. Two or three decades ago almost all the biggest companies on the JSE were conglomerates. Just think of the mining houses, like Anglo American, which mined gold but were also active in sugar (Tongaat), steel (Highveld) and banking (FirstRand) and at one time even had a small subsidiary, Anglo Properties, which later became technically insolvent.
In the past, SABMiller not only produced beer but also made and distributed shoes and even chanced its hand at retail with OK Bazaars. Exchange control at the time – which tried to keep all the money in SA, together with Government policy of inward economic development and industrialisation – not only encouraged the conglomerate movement but in fact also allowed companies almost no other option.
Anglo wasn’t allowed to take the millions in profit it earned in SA and invest it overseas; or even to prospect for gold in another country. And at the time companies weren’t allowed to buy their own shares back either. The only option was to go into something you knew nothing about and you usually made a mess of it in the end. Not so long ago SAB sold its interest in OK Bazaars to Shoprite for R1 – a win-win transaction for both parties.
But let’s get back to the “urge to purge” rather than the “urge to merge”. Around five years ago Anglo American shocked SA with its plans to sell those things that no longer fitted in, which included pulling out of gold. That’s right. Anglo started systematically selling its interest in AngloGold Ashanti.
SAB also made use of the easing of exchange controls under the new Government by shifting its primary listing to