Urge to purge

Cor­po­rate sep­a­ra­tions more fash­ion­able now than mar­riages

Finweek English Edition - - INSIGHT -

“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

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