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Wednesday, February 17, 2021

Arcadia, twelve years on... the donkey died

First published here in 2009 as 'Who Runs Britain?'

It's not just the bankers and the politicians. I'm reading Robert Peston's book "Who runs Britain?" and I'm wondering about the social benefits of private equity entrepreneurs. 

Take store group Arcadia, for example. In the year 2000, it was acquired by Stuart Rose, at which time it had a turnover of £2.5 billion, debts £250 million and a market capital value somewhere around £100 million. "The business was viewed as dead meat when he arrived." Two years later, the turnover was down to £2 billion, but all the debt was cleared and the group was making an annual profit of £106 million. 

Rose then sold out to Philip Green for a reported £850 million (Peston says £775 million), of which Green's personal investment was only £9.2 million. 

In 2005/2006, Arcadia's sales were down to £1.8 billion, but profits had risen to £300 million, according to Peston. Green then made it declare a £1.3 billion dividend, £1.2 billion of which went to his wife - who by then was, technically, domiciled in tax-free Monaco. This record-breaking payout was funded by bank loans to Arcadia totalling £1.35 billion, with the result that the group's net asset position went from plus £303 million (in August 2004) way into the red - minus £807 million. You'll see that the dividend accounted for the decline in Arcadia's net worth, and more besides. 

Stuart Rose is like a man who buys a sick donkey, nurses it back to health and sells it at a profit. Green appears to me like the new owner who nurtures it further, then suddenly puts back-breaking quantities of heavy stone in its panniers and wanders off on other business, whistling merrily while the poor, over-laden beast staggers behind him in the wilderness. If it should stumble... 

I can see what's in it for the bankers (less so, their shareholders). I can certainly see what's in it for Philip Green. But what's in it for us? We work, earn money, pay taxes and what is left we spend in stores that export our capital. 

If this is to be the pattern for British business, we are finished. I don't see Johnny Foreigner making plans to take on the obligations of our Welfare State when we no longer make anything he wants; if he's looking for maltreated, ill-bred, indolent slaves, he'll find all he needs closer to home. 

Are we making a nation fit for Marxists?


A K Haart said...

"Are we making a nation fit for Marxists?"

We appear to be. It is difficult not to be pessimistic when confronted with such stories or when we simply take a look at the world around us.

Yet the world trundles on as if a more accurate story should contain a few doses of optimist. Teasing out those doses of optimism in the face on endless negative media onslaughts - that appears to be one problem. Optimism always comes across as too optimistic, yet possibly it isn't.

Sackerson said...

Hope, the last thing to come out of Pandora's box.

Paddington said...

Check out the business model of the vulture capitalists like Mitt Romney, who do much the same sort of asset-stripping of companies, including the delightful touch of pocketing the pension funds.

Sackerson said...

@P: How does that square with his Mormon beliefs?