Hedge fund targets Saga break-up as it reveals stake
Struggling over-50s travel and insurance firm has lost three quarters of it value since public float in 2014
THE struggling over-50s travel and insurance provider Saga has become the latest target of Elliott Management, after the feared activist investor revealed a 5pc stake and signalled it could push for a break-up.
Elliott, controlled by the New York hedge fund billionaire Paul Singer and his London-based son Gordon, has seized on repeated profit warnings from Saga, which has lost three quarters of its value since its stock market debut five years ago.
The famously combative firm, which has campaigned for change in a string of British boardrooms in recent months, wants Saga to consider all options to recover returns for investors, including separate sales of its insurance and travel businesses.
Elliott believes that a split would make the two parts of Saga more attractive to potential buyers in their respective markets, sources said.
The 60-year-old company sells a host of personal finance and travel services for older people, ranging from home and medical insurance to package holidays and cruises.
Pressure for a major overhaul follows a turbulent few years for Saga since it was floated by its former private equity owners, which had failed to find a buyer for Acromas, a debt-laden holding company comprising Saga and the breakdown service AA.
Saga issued its second profit warning in three years in April, alongside what it said was a “fundamental” change in strategy. It said that the revamp would include sharp cuts to prices in its insurance business in order to tackle declining customer numbers. It also warned sales would remain sluggish in challenging market conditions, however.
Elliott has launched its campaign amid a change of leadership at Saga. The company is currently on the hunt for a new chief executive after it was announced that Lance Batchelor would step down in January. The 55-year-old, who joined the group from Domino’s Pizza, has run the company since shortly before its initial public offering.
Other senior level departures at Saga in recent years include those of its former chairman Andrew Goodsell and its former chief financial officer Jonathan Hill, who left the company to join Paddy Power Betfair.
Saga joins a list of UK assets whose shares are held by Elliott, including Whitbread, the leisure group behind Premier Inn, and BHP Billiton. Elliott has also built up stakes in listed companies across Europe.
Famed for its cut-throat activism, Elliott has pushed through shake ups in a number of UK boardrooms. Last year it called for the break-up of Whitbread, which sold Costa Coffee to Cocacola. It also held a stake in GKN, which was later sold to Melrose.
Elliott has itself become an increasingly active private equity investor after hiring former Warburg Pincus managing director Paul Best to lead its buyout strategy. Last year it bought a stake in bookstore chain Waterstones and has recently added US bookseller Barnes & Noble to its portfolio. It has also reportedly bid for Majestic Wine.
Elliott, which oversees roughly $35bn (£28bn) worth of assets, declined to comment.
A Saga spokesman said: “We have good and open relations with all of our shareholders and expect to be in contact with Elliott shortly.”
If Lance Batchelor was hoping for a quiet time of it before sailing off into the sunset, the outgoing boss of over-50s insurance and cruise specialist Saga should look away now. A month after announcing his “retirement” at the ripe old age of 55, activist hedge fund Elliott has popped up with a 5pc stake. Talk about rocking the boat.
With its chief executive bizarrely choosing to hang around until January, he is almost certainly guaranteed a memorable send-off now.
Under the former submariner, Saga’s share price has sunk to the murky depths from an issue price of 185p five years ago to just 49p today. More than 200,000 private investors, many of them loyal Saga customers, have lost three quarters of their money.
Hardly a surprise then that Elliott has chosen to board the good ship Saga now, as it flounders on the rocks. Its move is timed perfectly.
Speculation will immediately centre on what its motive is but the fund’s playbook is well-versed so there should be no illusion that its thinking may be long-term.
Instead, Saga will almost certainly be pushed hard down the classic break-up route, separating itself into two businesses: a cruise ship operator; and an insurance provider; and providing a princely return for Wall Street’s scariest bare-knuckle brawlers in the process.
This is Elliott’s bread and butter. It was instrumental in forcing Whitbread to flog its Costa coffee brand last year to Coca-cola, and has tried to engineer similar sell-offs or demergers at companies all over the world including Samsung, ebay, and French drinks giant Pernod Ricard.
Saga looks ripe for such action. With a strong brand and wealthy customer
base, it had all the right ingredients to be a roaring stock market success. Instead, it has issued two profit warnings, the second of which, only in April, was accompanied by a vicious dividend cut.
Admittedly, it wasn’t given the best of starts on the public markets, with progress hampered by a £700m debt pile left over from its days under private equity ownership.
The insurance market has changed dramatically too, with the arrival of price comparison websites that have heavily undercut the company on some of its key products.
Still, under Batchelor, Saga has been woefully slow to respond to the challenges and unable to build on its unusual set-up.
The big question is whether there really is a compelling case for an insurance seller to also be a cruise ship operator. It’s not the most obvious mix, let’s be honest.
The argument is that the over-50s enjoy having one company service two of their biggest needs; and an extensive database of customer information provides rich opportunities for cross-selling.
Yet, reality has proved otherwise. Saga sells 2m motor and home insurance policies every year but just 26,000 cruises.
Nor has this proven to be some magic formula that would unlock the door to exciting new markets, despite the bold claims of the shiny prospectus that accompanied its stock market debut.
The sale pitch spoke glowingly about “one of the most recognised and trusted” brands among the over-50s demographic, which offered the potential “to expand into other business areas” including financial services and healthcare.
Instead, the shape of the business has largely remained the same: four fifths of profits come from insurance; the remainder from cruise holidays.
Still, does that mean the two divisions are better off apart? Until it happens we won’t know. But one doesn’t necessarily follow the other.
Perhaps the problem lies with execution, in which case a changing of the guard and a new sales and marketing function may be what’s needed, not a ruthless break-up followed by a sale of the two individual businesses to the highest bidders.
Yet with Batchelor on his way out, the writing may already be on the wall. Elliott’s move looks deliberately timed, and having quietly become Saga’s fourth largest shareholder with a 5.1pc stake, will smell blood.
Long-suffering investors, I suspect, will simply be relieved to recoup some of their losses, even if it means selling a company with such a rich heritage on the cheap and handing a handsome return to one of Wall Street’s most ruthless operators.
Batchelor stands to make another £1.2m this year, much to the fury of shareholders, taking total earnings to the £12m mark during his time in charge. Not bad for a drunken sailor routine.
‘Saga sells 2m motor and home insurance policies but just 26,000 cruises’