What a day for democratic debate! Well, not at Flybe. Shareholders, still reeling from the board’s decision last Friday to accept a takeover offer at 1p a share, or just £2.2m, have now learned they won’t get a meaningful vote on the deal. The directors have instead agreed to flog the regional airline’s assets almost immediately at the same price to the same bidder, a consortium comprising Virgin Atlantic, Stobart and investment firm Cyrus.
Is that even legal at a public company? It seems it is, or rather it will be on Thursday, which is when Flybe switches its stock market listing from “premium” to “standard” status. The latter does not require shareholders to approve major asset sales.
Flybe dropped its bombshell in a clunky statement that barely bothered to explain what has changed since last Friday to require a revised rescue plan to be forced through in a hurry. Simon Laffin, chairman for the past five years – so in the cockpit for most of Flybe’s descent to 1p – should have treated his investors more courteously. Some were praying that, against the odds, a rival bidder might show up.
Yet Laffin and the board’s decision is correct. Last week’s proposal required cash-strapped Flybe to make peace with its banks and credit card processors and secure a credit facility of £20m. Instead, the banks and card firms are still playing tough, which was perhaps predictable since a proposed rescue is not the same as an actual rescue, especially when ex-Stobart chief executive Andrew Tinkler suddenly snapped up 12% of Flybe’s stock.
Thus there was a need to get cash in the door quickly to keep flying. A sum of £10m was duly injected by the buying consortium as it got a deal to secure the assets by mid-February at the latest.
From the point of view of Flybe’s shareholders, it feels outrageous: their voting rights have been trampled upon. Yet what was the alternative? If collapse was an imminent threat – and it seems to have been – the important thing was to protect the interests of 2,400 staff, pensioners and booked passengers. It had to be done.
But praise for Laffin stops there. He still has to explain to investors why Flybe left it so late to put itself up for sale. The process started in November. Why not earlier?
Boohoo sheds no tears for Asos
Who’s the UK’s top online-only fashion retailer? In sales terms, it’s Asos – and always has been. The firm started earlier than everybody else and has been in rapid expansion mode since 2005. It will shift about £2.7bn worth of garments this year.
In terms of stock market capitalisation, though, it is tight. Little ol’ Boohoo, with annual revenues of just over £800m, is suddenly worth roughly the same – about £2.2bn.
One can understand why. It’s not just that Boohoo, which also controls the PrettyLittleThing and Nasty Gal brands, is growing more quickly, with revenues up 44% in the last four months of 2018. It’s also that Boohoo achieves a respectable operating profit margin – about 9.5%, according to Tuesday’s update. By contrast, Asos stunned its shareholders with a pre-Christmas warning that margins will go as low as 2% this year.
What explains the apparent gulf in profit efficiency? Is it because Asos is bearing the costs of building more warehouses overseas, a task Boohoo may one day have to face as it follows a similar expansion plan? Or is it because Boohoo only sells its own brands and doesn’t have to deal with third parties? Hard to say, but 2% versus 9.5% is very wide gap, and Asos has yet to explain how it will close it.
The January naysayer has spoken (again)
Albert Edwards is the City’s best-known bear and his annual January prophecy of doom is always worth hearing. This year’s highlights included a hard landing in China, a eurozone crisis born in Italy and a US Fed tightening too fast.
But attendance at the Société Générale analyst’s show is also a rough indicator of the City’s mood. When investors are rattled, as they were in 2017, after the UK referendum and Trump’s election, it can be standing-room-only in a Mayfair hotel conference room that holds 950. Monday’s event, however, was about two-thirds full. Reassuring? Actually, no. Edwards reports the market always goes up in years when the place is packed. Be warned.