The Keswick victory over its minority shareholders resembled a skirmish outside the castle walls. One suspects the armies still loom over the hills. However, some interesting points emerged from Jardine Matheson chairman, Henry KeswickÆs, statement.
Central to his argument is that the JardinesÆ cross-shareholding structure offers a defence against the volatility of the Asian markets and allows the managers to focus on long term growth. ItÆs easy to swallow that one without thinking of the implications. In fact, itÆs a bit like saying the reason we rig elections every five years is that it is really good for the long-term growth of the economy, because it creates continuity.
ThatÆs the argument former President Suharto used in Indonesia for 20-odd years. And itÆs actually quite a powerful argument û if you are showing positive results, and results count more to you than ideology or ethical niceties.
Taken back to the business sphere, I would imagine that every technology and internet company could argue that they operate in far more volatile markets than Asia. Therefore, why shouldnÆt the entire Nasdaq adopt this defensive structure û which makes takeovers extremely difficult?á
Keswick also used the phrase ôgenuine shareholder valueö. Again, this is the sort of phrase that washes over the ear and doesnÆt engage too much thought. It sounds good. But the word ôgenuineö is troubling. It implies that shareholders donÆt know what is good for them û theyÆre all so short term, you see. What they really need is a paternal figure who can give them 'genuinelyÆ good returns in spite of themselves.
Hmm. Maybe Jack Welch could make that argument. A Keswick could have made it in the period between 1880 and 1910 or in the period between 1945 and 1970. But it is no surprise that many people are more sceptical of the claim today given the appalling performance of Jardine stock in recent years.
Which brings us to KeswickÆs next broadside: ôIt is not the not the purpose of the Board to lay the company open to an opportunistic bid at a time when it share price does not reflect its true worth.ö
Another brilliant remark. But what is he talking about? A share price is a dynamic picture of a companyÆs worth.á Because Jardines' trades at a 30% discount to net asset value, to say the share price does not reflect the companyÆs ôtrue worthÆ is a truism. If the share price does not reflect the companyÆs true worth over a long period, then the management must take full responsibility for that.
The fact that even he admits that ôshare price performance in recent years has been disappointingö is a tacit recognition that the share price has not reflected this value (its true worth) for a long time. Using the most basic logic, it follows that this is a de facto vote of no-confidence in the management. The share market does sometimes behave irrationally, but over the long run it is rational. JardinesÆ share price over the long run has not performed well.
The victory in the AGM was probably something of a foregone conclusion, given the existing structure. However, a majority of the independent shareholders voted for the proposal to dissolve the defensive cross-shareholding. In the wider sphere of the international share market, JardinesÆ shares will no doubt continue to languish.
