Amlin and Glencore – Market surprises, but not at Berkeley

This morning a takeover bid for insurer Amlin was announced by Mitsui Sumitomo Insurance. A cash offer of 670p which represents a premium of 34.5% to last nights closing price. With Amlin having been warning for some time about increased competition in the catastrophe insurance sector, this is surely a done deal assuming they can get over any regulatory hurdles.

I was going to write that unlike many mega deals the news seemed not to have leaked out in advance, but it’s good they made such an announcement because I just noticed that the FT ran a headline story on the “takeover talks” in this mornings paper so clearly knew about the announcement ahead of time.

As a long-term holder of Amlin my only regret is that this takes me out of one of my stable and defensive holdings with a high dividend yield of over 5%. Historically it always traded on a low p/e ratio and the only reasons it seemed lowly rated were a propensity for analysts’ earnings forecasts to be somewhat inaccurate and rather opaque financial accounts as with many insurance companies. The only down side I can see is that having held the shares since 2005, with some bought for as little as 175p, I will end up with a significant capital gains bill.

If anyone has any suggestions for suitable replacements for my portfolio, let me know. But with the new dividend taxation arrangements, high dividend payers may be less of interest.

The other surprise was the announcement yesterday that Glencore is to try and cut its debt pile. This is an astonishing figure of $30 billion. With commodity prices falling, the share price has been one of the worst hit of mining companies (down by 65% over the last year) as investors became wary of the level of debt. I wrote an article on the natural resource sector for the last ShareSoc Informer Newsletter which we have just issued saying companies in this sector had only themselves to blame. They expanded production too much with excessive debt. I suggested correction only happens when a few producers go bust, and I rather thought Glencore might be one of them.

Glencore have pre-empted that outcome with a plan to cut its debt by one third, some asset sales , an equity share issue of $2.5bn and the suspension of the dividend. It’s also suspending copper production in Zambia and the Congo, which they expect to boost the market price of copper. Surely just what the doctor ordered! The share price immediately bounced upwards on the day of the announcement, closing 7% up. Not many private shareholders probably hold Glencore (I do not), and it’s surely only a share for those wanting to bet on a recovery in commodity prices and those guessing that we are nearing the bottom of the cycle.

Talking of cycles, I was at the Berkeley Group AGM this morning in deepest Surrey. Another company in a cyclical market – in this case housebuilding. As the Annual Report spells out, “We recognise the property market is inherently cyclical“. The Interim Management Statement issued before the meeting tells you what they are doing to counter that to some extent. They expect to remain ungeared after the next dividend payments, and are still on track to return £13 per share to shareholders by 2021 as planned (current share price was £33.80 last night). In other words they are returning cash to shareholders rather than expand operations too rapidly as many housebuilders did in the last boom time (and overpaid for land also).

But there were otherwise no real surprises at the AGM. Despite PIRC opposing the Remuneration Report, and I speaking against it, it was passed with 85% of votes in favour on the proxy counts, and none against in the room other than mine so far as I noticed. This just shows how difficult it is to get investors to vote against resolutions when they are happy with the company’s performance and its share price. Just to remind you, Executive Chairman Tony Pidgley received a “single figure of total remuneration” amount of £23.3 million last year. His bonuses , as PIRC reported, amounted to 27 times his base salary. And why does he need an LTIP to incentivise him when he is such a major shareholder in the company? Mr Pidgley noted he would avoid any political comments in response to one question, but he might feel differently if Jeremy Corbyn ever gets into power as he has vowed to tackle excessive remuneration and wants a maximum pay limit imposed apparently.

I’ll be doing a more comprehensive write up of the Berkeley AGM for the ShareSoc Members Network.

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4 thoughts on “Amlin and Glencore – Market surprises, but not at Berkeley

  1. If you’re upset about losing that nice 5% yield then you could leave some of the capital gains in cash and use it to boost whatever income you get from Amlin’s replacement.

    As for a possible replacement, I recently purchased Beazley, another insurer, so you could take a look at that one. The headline yield isn’t so good but it does have a history of paying substantial special dividends.

  2. “Chairman Tony Pidgley received a “single figure of total remuneration” amount of £23.3 million last year. His bonuses , as PIRC reported, amounted to 27 times his base salary. And why does he need an LTIP to incentivise him when he is such a major shareholder in the company?”

    I would have thought because otherwise he could saddle up his horse and ride in to the sunset and live off his dividends. Maybe he should do it for love but I wouldn’t.

    Certainly if I had £200m in BKG invested it would take a huge salary to keep me at my desk rather than going of to do something a lot less high profile and less open to vilification from all and sundry, not least the new leader of the labour party.

    I am sorry but he has my total admiration.

    I currently hold BKG.

    • Pidgley is already so wealthy from his holding in Berkeley alone that there is no great reason why he has to continue working there or anywhere else so the argument that he needs massive remuneration to retain him is fallacious. His interest in protecting his investment in Berkeley might be one reason why he prefers to stick around. But there is no necessity to pay him oodles of cash on top.
      Sometimes people continue working because they enjoy it and founders in particular are reluctant to let their baby grow without them. Lots of academic studies have shown that the prime motivation for employees to do a good job, and to stick around, are not financial but other elements of any job.
      There was no vilification of Pidgley in the original blog post, or at the AGM. The ire was directed at the Remuneration Committee who developed the pay policy, and those shareholders who did not oppose it.
      Roger Lawson

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