I have only met Sir Victor Blank, chairman of Mirror Group, on a couple of occasions. Once was in his former offices at merchant bank Charterhouse, in the shadow of St Paul’s Cathedral. The other time was at his magnificent, walled Elizabethan pile near Oxford, where he hosts an annual cricket match on his own square.
In both professional and social instances, he struck me as a perfectly charming man. But doubtless, as recent events at Mirror Group demonstrate, he is also a toughie.
That lovely house was bought on the back of a deal he led in the early Eighties for the acquisition of what was then known as FW Woolworth for 310m, from which he accrued 8m personally.
For all I know, he led that deal with charm and urbanity, but that is not the point. What the wealth of Blank really demonstrates is his innate appreciation of shareholder value.
Add that to his toughness and one can safely assume that David Montgomery has received a formidable education during the past 18 months as chief executive of Mirror Group.
There are any number of things to say about Montgomery, most of which have been said over the past week, by commentators among whom he has made few friends over the past decade.
Never was there a better example of the dangers of making media enemies on the way up – there has been no shortage of those waiting to kick him on the way down.
But what media commentators have shrunk from, for fairly obvious reasons, is the essential difference in the backgrounds of Blank and Montgomery. Blank is a self-made lawyer and businessman. Montgomery is a self-made journalist and businessman. Apparently, it is highly unusual for a journalist to successfully make the transition to business life. Montgomery’s record at Mirror Group shows he undoubtedly achieved this transition.
In this, he is like Andreas Whittam-Smith, founder of The Independent, where eventually Montgomery was to purchase a stake with Tony O’Reilly. Unlike Whittam-Smith, Montgomery may have underestimated the City. More specifically, he may not have fully appreciated what the City means by shareholder value.
City institutional investors are not necessarily going to bite the arm off the first company that offers more in cash for a company such as Mirror Group than another company that is offering a deal in its own shares.
This is the essential difference between the offers for Mirror Group from the publicly-quoted Trinity and Regional Independent Media (RIM), backed by private equity.
Trinity’s “paper” deal values Mirror Group at about 165p per share, depending on Trinity’s value in the market, against the 200p per share in cash that RIM came up with. On paper, as it were, the decision looks like a no-brainer. But City investors are disinclined to just grab the money and run.
A principle of value investment, as opposed to growth investment where you simply back the blue-chips, is to spot opportunities in underpriced stocks. It follows that so-called value investors in the City will want to see returns on their investments delivered over time, through publicly-quoted shares, rather than losing that investment potential to a private company.
There is, of course, a limit to this principle. Another way of putting it is that everybody has their price. I imagine that, if someone pitched up with 250p per share, then shareholders might well decide to trade long-term earnings potential for cash now.
That kind of value may have been what Montgomery was after. But, in the end, it looked as though he favoured RIM’s cash over Trinity’s paper. And the perception of being in the way of long-term value did for him.
We’ve been here before. It all reminds me of the twilight days of Saatchi & Saatchi a few years back, when directors were running about the board, variously trying to shore up Maurice Saatchi or to stab him in the back.
Or to be seen to be doing the former while actually doing the latter. David Herro was the lightening-conductor shareholder in the States in those days.
There was talk of how the company could only be taken forward by Maurice – similarly, Montgomery with Mirror Group. In the event, neither Cordiant nor M&C Saatchi are as big as Saatchi & Saatchi in its heyday, but are more robust than the old entity was ever likely to become again. And I recall how there were those around Saatchi (the company) who claimed it would never go to an EGM – that is, until an informal poll of shareholders demonstrated there was overwhelming demand for management change.
Montgomery may have taken a churlish view of this sort of shareholder in the past, but he will have learned a tough lesson the hard way. He’ll be a better prospect for City institutions in his future career as a result. What they see are shares in Daily Mail & General Trust, a company very similar in profile to Mirror Group, trading on a multiple of 23 times prospective earnings, against half of that for Mirror Group. There is a value gap to be closed there.
If the closure of that gap demands new management, then so be it. That’s how capitalism works. I expect Blank understands that. That’s why he’s where he is today. And that’s why Montgomery is where he is too.