Even the most seasoned investors are likely to be stumped when asked to name more than a handful of the original constituents of the FT30.
Only two names have remained steadfastly in the index since its 1935 inception – Tate & Lyle PLC, the ingredients group, and engineer GKN PLC – while other inaugural names such as Harrods, EMI Group PLC, International Tea Co, Stores and London Brick Co. have fallen by the wayside.
However, one of those original FT30 companies will later this year make its long-awaited return to the London Stock Exchange, bringing a slice of British manufacturing history back into public trading.
Coats – whose threads hold together one in five garments on the planet – will re-emerge on to the LSE, a decade after it was taken private by Guinness Peat Group, the activist investors founded by corporate raider Sir Ron Brierley.
“The Coats name will be back in a different guise, with a different global footprint, and a whole bunch of interesting innovations but without losing sight of what made the company great over the past 250 years,” says Paul Forman, Coats chief executive.
Since early 2011, GPG has been selling off its investment portfolio – concentrated mainly in Australia, New Zealand and the U.K. – in a move that will leave the Coats threads and zippers business as the listed vehicle’s sole trading line.
“The useful life of GPG as an investment vehicle is coming to an end. It is not an IPO; in its simplest form it is a renaming,” says Mr. Forman.
By cannibalizing its owner, Coats can re-emerge as a publicly listed company without having to test London’s choppy IPO waters.
“Many companies have said that they were coming to market, and not got there due to market conditions,” says Richard Howes, finance director. “Whereas Coats’ re-emergence as a listed company is different. This is as good a time as any [to become a listed company].”
So far about two-thirds of GPG’s investment portfolio has been sold, including brewers Young & Co.’s Brewery and Shepherd Neame, Nationwide Accident Repair Services and Newbury Racecourse. The sales have netted GPG some £480-million to date ($746-million U.S.), with some of the proceeds contributing to a £70-million share buy-back program.
The group’s remaining assets, including stakes in New Zealand insurance group Tower and Australian salt and animal feed company Ridley, all together valued at £195-million, are still up for sale.
Trading solely as Coats – the world’s leading supplier of threads to the clothing trade – the company will shed the conglomerate discount that was applied to the disparate arms of GPG and can be accurately valued as a pure-play textiles company.
GPG’s market capitalization is currently about £480-million and Coats’ management are coy to put a figure on a possible valuation when it returns to market. Analysts’ valuations for Coats as a sum of the parts valuation range from $230-million to $548-million, after returns to investors.
After reaching a market capitalization of £2-billion in the early 1990s, Coats endured a torrid period during the 1990s, dropping out of the FTSE 100 amid a declining European textile industry.
Guinness Peat Group paid £414-million for Coats in 2003, and has used the intervening years to broaden its reach: Its threads can now be found in Kookaburra cricket balls, tea bags, airbags, seat belts, Nasa parachutes, medical thread for operations and even the absorbent polymers protecting fibre-optic cables.
“We’re on a road of continuous incremental reinvention. We make clever little lines,” says Mr. Forman. “In the textile industry, no one has the credibility that we have.”
In 2011, GPG’s book value of Coats fell to £150-million, down from £320-million a year before largely because of a £187-million contribution to the group’s U.K. pension plan.
Adrian Allbon, analyst at Goldman Sachs, suggests that, in spite of the £187-million contribution, Coats’ pension plan has a £200-million to £240-million deficit, which will force it to near-double its top-up payments to £17-million over the next three years.
Coats’ bottom line was further weighed down last year when it lost an appeal with the European Union’s general court against a €110-million ($148-million U.S.) fine for fixing the price of fasteners such as rivets and zippers.
In the first six months of 2012, Coats swung to an $83-million pre-tax loss – impacted by the €110-million fine – from a profit of $79-million the previous year. Revenues fell 5 per cent to $816-million.
“2012 was a tough year for Coats. First-half profits were materially weaker than expected due to supply chain de-stocking and higher raw materials costs,” says Mr. Allbon. “For 2013, we are optimistic that Coats’ prospects are on the mend.”
Had the numbers been stronger for GPG, Mr. Forman and his fellow Coats’ executives could have pocketed an incentive package windfall of as much as $100-million once GPG’s disposals are finalized.
However, Mr. Forman says that this figure is likely to be “not even one-tenth of [$100-million]” after the value of a trimmed down GPG was unlikely to hit hoped-for highs above $1.35-billion.
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