Snap’s arrival on the New York stock exchange is ludicrous in two ways. The first doesn’t matter terribly. If investors want to place a value of $29bn on a five-year-old company that made losses last year of $514m, that’s their lookout. The second is serious. Snap was offering only shares with zero voting rights, which sets an appalling governance example.
Technology and social media pioneers already had a shocking record of ignoring the principle that equal economic risk should imply equal voting power. It was poor practice when Google and Facebook floated with shares carrying restricted voting rights, but at least the new co-owners were not entirely frozen out of debates about how the company should be run.
Snap’s zero-voting variety offers no possibility that founders Evan Spiegel and Bobby Murphy can be held to account should they over-reach themselves in challenging Facebook. Michael Pachter, investment analyst at WedBush, put it well: the governance framework says, in effect, that “you are a genius and no one should question you”.
Snap’s thin justification is that nothing must distract from the single-minded pursuit of the vision of “reinventing the camera ... to improve the way people live and communicate”. Whatever that means, it should not involve a governance structure that belongs in the 19th century and would surely be cold-shouldered if attempted in the UK.
Yes, US investment bankers will sell most things if the fee is large enough, but the willingness to trample on shareholders’ rights to this degree is breathtaking. So is Snap’s boast that its products “empower people to express themselves”. Its new class of shares does the opposite.
Another pre-pack firesale
Into administration one minute; out the next. Yes, it’s another pre-pack administration in which the lid is never lifted long enough for outsiders to see what lies within. Mike Ashley is the new owner of lingerie chain Agent Provocateur, paying £30m for the privilege.
He is not the first to succeed in one of these speedy sales, but were pre-pack administrations really meant to be a standard technique for selling businesses that have failed to find buyers as a going concern? In other cases, suppliers and landlords have felt short-changed in the rush. An official accounting body ought to have a look. The retail sector, in particular, seems to have adopted pre-packs with an enthusiasm that was never intended.
Decapitation at Capita
Capita’s Andy Parker cannot be surprised that new chairman Sir Ian Powell has decided to push him out – or, in the corporate lingo, mutually agree that “the next phase of his career” is best pursued elsewhere. The share price, down 60% in little more than 12 months, has been a calamity for investors.
If you are paid splendidly (Parker got £2.7m in 2015) and you produce the first two profit warnings in a company’s 25-year history, you cannot grumble when the executioner calls. Parker, to his credit, did not – he is staying until Powell has found a new boss.
Yet this deCapitation feels like a borderline case. It’s not as if the company has fallen apart as spectacularly as, say, rival Serco did a couple of years ago. Thursday’s full-year numbers were ruined by the inevitable raft of impairment charges and restructuring costs but, if you’re happy to look at “underlying” figures, the scars were less deep. Pre-tax profits fell 19% to £475m but profit margins were 11.1%, which most of Capita’s rivals would love to imitate.
The fall in the share price has been steep partly because Capita is carrying too much debt – £1.8bn at the last count. But the stack is far from ruinous. It should be a simple matter to flog the asset services division, which makes £60m of operating profit, for £650m-ish and thereby avoid a rights issue. If all goes to plan, the dividend should be safe since it costs £200m and Capita generated £400m of cash even in a bad year. Life could yet get worse, but the numbers do not suggest a financial basket case – far from it.
Powell, freshly out of PricewaterhouseCoopers, is clearly an accountant who wants to make his mark. He is entitled to recruit a chief executive from outside since some of Capita’s woes in 2016 – overspending on the London congestion charge and failure to spot the rot in the recruitment business – were self-inflicted. But it is not a risk-free decision.
Capita, love it or loathe it, has always prided itself on promoting from within. Soon it could have a chairman and chief executive with combined service of less than a year. Powell, two months into his first gig chairing a big public company, has made a big call that wasn’t driven by shareholder pressure – it had better be correct.
