Stay up to date with notifications from The Independent

Notifications can be managed in browser preferences.

Comment: Chubb fattened up for the kill

Thursday 13 February 1997 19:02 EST
Comments

Your support helps us to tell the story

From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.

At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.

The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.

Your support makes all the difference.

Even for someone as well versed in shareholder value as Sir Ernest Harrison, today's expected pounds 1.3bn bid for Chubb is something of a coup. Not satisfied with spinning off first Vodafone and then Chubb from Racal, his sprawling electronics empire, he has now given shareholders another slice of value just as the locks and safes business was running out of steam.

When Chubb emerged from Racal it was flabby and undermanaged, grist to the mill for Ernie's hatchet-wielding lieutenant David Peacock, who set about the cost-base with gusto. No surprise that the shares should double during 1993 as he unlocked the company's well-hidden potential.

Since then, however, it has been downhill all the way as a talent for swinging the axe had to be replaced by a flair for top-line growth. The electronic and physical security market is huge, worth on some estimates pounds 25bn a year, but in many developed markets it is also stagnant. In a handful of Far Eastern markets it is growing fast from scratch, but Chubb has struggled to capture those sales.

Chubb has had to work hard to shed its staid image and judging by its flagging rating it has by and large failed. Profits from locks and safes have sagged as weak European economies and the moribund Australian construction market took their toll. Even the sexier closed-circuit televisions and alarms sector have struggled to generate double-digit growth. After disappointing interim figures before Christmas analysts have been taking the red pen to forecasts.

So securing a bid at a premium of almost 50 per cent to the shares' recent low represents a real coup, even if delayed growth from recent Australian acquisitions means the price is less attractive than it might immediately appear. Adding in the pounds 750m that the rump Racal business is now worth, a total of more than pounds 2bn compares pretty favourably with the pounds 700m Williams almost got away with paying five years ago.

Managements are usually pilloried for overpaying for assets, but this case shows the dangers of being too parsimonious. If Chubb's latest suitor really is Williams once again, it is paying a heavy price for its tight fists in 1991, when it was widely thought that a final tweak to its offer would have won the day.

Join our commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies

Comments

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in