The Wall Street Journal: Latest Deal Sends BP Yield Sky High: "Royal Dutch Shell sold petrochemical unit Basell to a U.S. fund for €4.4 billion six months ago.": Monday 10 October 2005

Not a bad change of heart. The initial price tag attached to BP's petrochemical unit when the oil company decided to float it was around $7 billion (€5.77 billion). One year later, BP has sold the unit to a debt-funded trade buyer for $9 billion instead. Better still, it will return the net proceeds to shareholders. If BP had followed the route toward an initial public offering, it would have floated just 50%, and so would have been able to pay out less than half as much to investors. (See related article.)

The deal is just the latest to show that the carry-trade-fueled M&A boom is still going strong. Indeed, private equity remains the largest buyer of chemical assets this year. Royal Dutch Shell sold petrochemical unit Basell to a U.S. fund for €4.4 billion six months ago. The fact that BP had a number of possible buyers circling will be good news for Italy's ENI and France's Total, both of which have long wanted to sell their own petrochemical units.

More than anything, though, the deal highlights just how much cash BP is throwing off. Take the $10 billion in buybacks it has penciled in for the year, another $7.5 billion in dividends, and now this, and BP offers a monstrous cash yield of close to 11%. Investors who gave the stock a battering after the company said it would miss its production targets this year by a smidgen, thanks to Hurricane Katrina, might want to reconsider.

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C&W

Investors have long worried about the havoc that Internet-based services could wreak on traditional telecom operators. Cable & Wireless, the U.K. carrier, has shown why. Its customers have noticed that by shifting their voice and data requirements from traditional systems to the Internet they can save themselves a packet. That is really hurting C&W. The few customers it can shift to the Internet are paying less. Even traditional wireline customers are receiving discounts. C&W is having to cut bills to keep them. The result: plummeting sales and margins.

Annualize the decline in revenue and it would fall by £100 million (€145.3 million) over the full year. While it is difficult to gauge the impact on earnings before interest, taxes, depreciation and amortization -- or Ebitda -- Dresdner Kleinwort Wasserstein has penciled in a £50 million decline. Because the U.K. is C&W's largest single-country operation, that presumably justifies the 15% fall in the share price.

Not so fast. This ignores the fact that C&W stock is left pretty bombed out. The company also has a profitable national telecom division -- a hodgepodge of mainly Caribbean operators -- which is expected to produce Ebitda of £450 million this year. Put that on a multiple of 4.5, add in cash, investments and Energis at its £600 million purchase price, and C&W is valued at more than £3 billion, about the same as its market capitalization after the drop. That implies that the core U.K. business is worth, at best, nothing.

That may be too gloomy. The Internet may be a headache in some respects, but it is also an opportunity. The Internet companies that are putting its retail division under pressure are also signing contracts with its wholesale division. There, revenue is rising. What's more, C&W is rolling out an Internet-based network. That will allow it to offer new services at a low cost.

What about Energis, the alternative carrier it bought in August? Investors clearly feel it will be hurting, too. But Energis is also an opportunity. The deal allows C&W to cut costs and to import Energis's superior performance under Chief Executive John Pluthero. It isn't clear that the U.K. business should be worth less than zero. It looks as if shareholders' pessimism toward C&W's U.K. prospects has returned to the fore.

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Accor

Accor's search for a new CEO has turned into a grand row about nepotism. Directors representing three large French banks that hold 10% of the shares between them have denounced the search process. They accuse the French hotel company's co-chairmen, Gerard Pelisson and Paul Dubrule, of undermining it in order to install a family member in the top job. (See related article.)

On the surface, it's encouraging that the banks are standing up for better corporate governance. French companies could certainly do with some fresh blood. The CAC-40 index includes plenty of family-dominated companies. Foreign chief executives remain a rarity.

But Accor doesn't look an obvious target for such activism. It is far from a dog. The shares have actually done pretty well, outperforming the CAC-40 over the past five years. The outgoing boss, Jean-Marc Espalioux, is widely felt to have done a competent job.

This, perversely, seems to be why the rebel directors are so mad. They only agreed to dump Mr. Espalioux because the co-chairmen promised to get someone better. Instead, the co-founders seem to want to give the job to Gilles Pelisson, nephew of Gerard. He's no obvious slouch, being the boss of Bouygues's unlisted mobile unit. But he's not seen to be any better than Mr. Espalioux.

What's more, the co-chairmen are alleged to have rejected all rival candidates, some of whose names were subsequently leaked to the media. One of these candidates, Pierre Danon of Capgemini, has now lost his job, according to press reports.

The banks are said to be threatening to force a shareholder vote on any appointment -- an almost unprecedented event in France. You might think the co-chairmen wouldn't want to stir up such a hornet's nest. Despite being founders, they hold just 3.5% of the stock -- far less than the banks.

But that's not the whole story. They are thought to have the support of Colony Capital, a U.S. investment fund that holds a bond convertible into 11% of the shares. With Colony's backing, the co-chairmen could perhaps face down the dissidents.

There is a mystery in all this. Why is Colony supporting an arguably nepotistic appointment that is opposed by such influential investors? It's not generally what hard-nosed Wall Street investors do. So it's hard to know what this fight is really about and why the banks are waging it. But if their actions lead to better corporate governance in France, that's all to the good.

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