Vedanta Resources is creating happiness. This might seem like a tall order for a mining group, but it must be true because the company tells us how it’s sent some nascent film-makers around India to snap pictures of smiling kiddies. It’s also pledging to present itself in an open and transparent manner. It must be true, because the company’s global communications head tells us. Despite its prominent position in the FTSE100, Vedanta has found happiness elusive and transparency hard. On Tuesday, it felt moved to put out a statement after the shares jumped 7%. Here it is, in full:
“Vedanta notes media speculation regarding a potential group restructuring. Vedanta’s stated strategy is to simplify and consolidate its corporate structure. Management reviews options to deliver this strategy on an ongoing basis and will update the market as appropriate.”
This knocked 5%, or £200m, off the share price on Wednesday. Vedanta is one of the toughest stocks in the index to analyse. It’s the family-controlled top company in a pyramid of majority-owned subsidiaries and, sad but true, the interests of outside shareholders and the ambitions of the company’s Indian founders may not always coincide. The share rating has never recovered from the announcement (triggered by a leak) of the purchase of a controlling stake in Cairn India in August 2010.
The real shocker was not Vedanta’s plunge into the oil business, but the fact that it was using its listed subsidiary, the iron ore miner Sesa Goa, as a piggy bank to help pay for it. However fine an oil prospect Cairn may be, the outside shareholders of Sesa Goa hadn’t expected to find themselves owning 20% of it, and the shares have disappointed since the deal was announced, despite booming prices for iron ore.
Now the “media speculation” is about a shuffle of liabilities between Vedanta and another listed subsidiary, Sterlite, which would cut Vedanta’s massive $10.4bn of debt by $2.4bn. Sterlite’s outside shareholders had successfully resisted an earlier attempt to “simplify and consolidate its corporate structure” which they felt was being done at their expense.
Perhaps realising that the earlier statement didn’t quite cut it, an anonymous official later explained that the idea was to slice and dice the various Vedanta interests, so that each listed offshoot would own a bit of all the others. It’s hard to see how some pick’n'mix proposal will achieve the open and transparent look that Vedanta claims to be seeking, but the buyers of shares in Sesa Goa and Sterlite can’t say they didn’t notice the presence of a controlling shareholder. Creating happiness, indeed, but for whom?
No Quarto given
The chairman of little Quarto Group doesn’t go in for standard corporate-speak. He doesn’t go for standard corporate governance either, since he’s also the chief executive. Laurence Orbach is my kind of guy. Here he is, reporting the 2011 results this week:
“Given the shifting sands underpinning the book publishing business, do shareholders need to be sceptical about the solidity of the entire industry? This is a reasonable question. Even those uninvolved in book publishing might find it difficult to ignore the apocalyptic tone of many reports about the industry, and the evidence that it is facing profound challenges that must be addressed.”
Over a very long statement, he tries to answer the question, deciding that Quarto’s self-help, long-life books don’t yet lend themselves to digital media.
“Why is Quarto waiting for the dust to settle? We shall continue to make available our titles in e-book format, but we cannot ignore the evidence that it has been extremely rare for firms entrenched successfully in one line of production to transfer their prominence into a newer area of production. How many railroad businesses went into making automobiles successfully? How many manufacturers of carbon paper (remember it?) moved into making copying machines? The list can be extended endlessly, easily swamping the exceptions.
“Firms successful in one line of business will experiment with moving into an area that poses challenges and offers opportunities but, inevitably, do so from a defensive standpoint, i.e. trying to extend their reach. In our view, that’s what is happening now in the book publishing business. The notion that supplying digital versions of narrative titles represents a major economic opportunity for publishers is largely window-dressing and hokum.”
All this philosophy and plain speaking has not been rewarded with a decent rating for Quarto shares. There’s almost no turnover, the spread is punitive, and I’m showing a loss on the small parcel I managed to buy last year. Still, at 152p the yield is 5.2% on an increased dividend, so I’m happy to wait and read Orbach’s prose. He’s threatening to retire next year, if the newly-appointed COO is a success. I’d certainly miss him.
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