The number of pubs in Britain has been falling for many years. Changing consumer habits and the availability of cheap supermarket offers has resulted in boarded-up and demolished boozers all over the country.
In the short run, therefore, the agreed sale of the pub and beer business Greene King to the Hong Kong property company CKA looks like good news. On closer inspection, it is a classic case of glass half empty, glass half full.
On the glass half full side, the willingness of CKA to pay a hefty 50% premium on the Greene King share price to grab the company’s portfolio of 2,700 pubs, restaurants and hotels suggests that overseas investors are looking through any Brexit disruption and envisage the economy bouncing back. Given that consumer spending has surprised on the upside since the EU referendum, that’s a reasonable assumption.
From the glass half empty perspective, CKA is merely the latest in a string of overseas predators taking advantage of the weakness of sterling to pick up UK assets on the cheap. Greene King is not the first company to fall into foreign hands and it will not be the last. There are plenty of other UK businesses like Greene King – UK focused and with depressed share prices – that look attractive at current exchange rates. There are bargains to be had.
It’s not hard to see why Greene King looked attractive. CKA is a property company and Greene King has an estate which has a current market value of £4.6bn against a book value of £3.6bn.
Many of these properties are in desirable parts of the country and would be worth more if converted into homes than they would be if they stayed as pubs. It is in CKA’s interests at present to say that it is impressed by Greene King’s ability to generate strong cashflow but any Greene King regular who thinks this deal will not lead to pub closures has probably had one too many.
Corporate gravy train is delayed, not halted
The average pay for the chief executive of a FTSE 100 company fell by 13% between 2017 and 2018 but it would be premature to say that the corporate gravy train has hit the buffers. Being held briefly at a red signal would be more accurate.
To be sure, the annual survey by the Chartered Institute of Personnel and Development (CIPD) and the High Pay Centre thinktank shows some evidence of restraint in the boardroom, which is welcome.
But as the study also points out, pay at the top tends to go in cycles due to the way in which remuneration packages are put together. Feast tends to follow famine.
What’s more, the gap between what a CEO gets and the pay of the average employee continues to be colossal. While not quite in the same league as the US, where it would take a worker 278 years to earn what the boss of one of the countries 350 biggest companies makes in 12 months, the chief executive-employee pay ratio in the UK is still a chunky 117 and up from 47 two decades ago.
Mark Littlewood, the director general of the free-market thinktank, the Institute for Economic Affairs, says fretting about top pay has become an obsession that ignores the achievements of successful chief executives. This argument would carry more weight if the IEA occasionally called out cases where pay has been way out of whack with performance.
It might also be pointed out that paying chief executives more appears to have made no material difference to the performance of the UK and US economies. But if bosses really think they can justify what they are coining in, they would presumably welcome the suggestion of the TUC leader, Frances O’Grady, that workers should sit on executive pay committees. Don’t hold your breath.
