“Picture you upon my knee, just tea for two and two for tea.”
Irving Caesar
A few days ago The City UK published its magnum opus called ‘Supporting UK Economic Recovery’. This impressive 148-page report proposes ways to recapitalise businesses post- COVID19, and is a welcome and timely contribution to the debate.
Understandably, such proposals are heavily skewed towards institutional and public finance: indeed, so far as the latter is concerned, we ourselves have weighed in with our proposal for the Bank of England to effectively write off its £500 billion holding of government debt.
But the perspective of business owners and personal investors needs attention too: only four pages of The City UK report focuses on the latter. So, in this commentary we suggest an approach to company law which would give hope and opportunity to them - and we report on the impressive change in fortunes for what is now the UK’s largest company, Unilever, and its plan for PG Tips.
Everyone involved in business finance and accounting, and all shareowners, know that in UK law holders of equity shares come at the bottom of the pile if a company goes into administration. Priority goes first to secured loan holders, then to HM Revenue & Customs, then unsecured and trade creditors, and finally, if there’s anything left after the administrators have taken their whack, to the poor old share owners.
Of course, holding shares is not an unlimited liability: you can only lose what you put in. That’s why I can never understand why people see £25,000 invested in shares as being a higher risk than a £25,000 deposit on a house purchase financed with a mortgage of £225,000. The house price only has to fall by 10% and they’re wiped out, and they still have to repay the mortgage.
However, in exceptional times like these, I do believe it is wrong that equity share owners are at the bottom of the pile. After all, it was on behalf of the community at large that the Government imposed the ‘force majeure’ lockdown, compulsorily closing down so many businesses, and it should be the community at large in the shape of a Government-guaranteed backstop which sits at the bottom of the company liability pile in these circumstances.
The City UK report is very detailed, and it goes some way towards this aim: but I believe it has to go further to give business owners and personal investors the confidence to raise new equity for their businesses. At present the report speaks of a general recovery fund, and it ponders whether personal investors might be invited to take a stake: I believe that their input should be directly into new issues of company equity, underpinned by such a general recovery fund which Government and institutions should structure and finance appropriately.
There is undoubtedly a strong appetite for equity purchases among personal investors at present: all the major investment firms are reporting healthy levels of activity and a strong buy-sell ratio.
And some companies are doing exceedingly well. We all know about the tech giants, led by Amazon (where all the talk is about them being the first to reach the $2 trillion market capitalisation threshold), and Zoom Communications, to which we referred at the beginning of the lockdown: but now all the flags are out for Unilever.
It’s been quite a turnaround for Unilever. Just over a year ago, there was a major shareholder revolt about moving their head office to Rotterdam. Now they’re going to focus on London, and they’re top of the FTSE100 index in terms of market capitalisation.
I must declare an interest: my grandfather, Sir Lancelot Royle, who I mentioned a few weeks ago in relation to ‘Chariots of Fire’ in our film reviews, was chairman of one of the key constituents of Unilever following his role as Head of NAAFI during WW2. He would be pleased to see their change in direction, and very interested to hear of the forthcoming carve-out of their tea business, headed by PG Tips.
Here is a prime opportunity for retail flotation. One of the most popular brands in every home, who would not want to buy a stake in their favourite brew? The primary market has really opened up for personal investors thanks to the good efforts of Primary Bid and the London Stock Exchange, and we must now make every effort to persuade Unilever to go for a retail share flotation for PG Tips.
Long-term readers of this commentary will recall our disappointment with Whitbread, who chose to make a trade sale of Costa Coffee to Coca-Cola rather than go for a retail share flotation. Let’s hope that Unilever don’t make the same mistake, but rather appeal to millions of people who can think of nothing better than investing in their favourite cuppa.
Personal investors’ interest in the market is vibrant. The savings ratio has soared as a result of COVID19, interest rates are flat on the floor for the foreseeable future, and people are buying shares in large numbers. Now we need to see corporate, financial and government institutions provide the opportunities for them to join in the recapitalisation of businesses post-COVID19 through equity investment, underpinned by that general recovery fund.
Gavin Oldham OBE
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