Last week private equity firm Clayton, Dubilier & Rice made an offer of £5.5bn to buy UK supermarket Morrisons. The company rejected it as being too low. But analysts expect a better offer in the coming weeks. The biggest shareholder in Morrisons is deep value fund Silchester. And the asset management fund is run by one of Britain’s wealthiest fund managers Stephen Butt. It’s highly likely to be up to him if a Morrisons takeover bid is accepted.
Butt is a philanthropist and paid himself at least £27m in 2019. Recent news shows he and his colleagues received a £110.8m payout for the latest financial year. Such a large payout as the pandemic continues puts Silchester under the spotlight after years of staying in the shadows.
Morrisons is not Silchester’s only deep value play
Yet, Silchester is not new to the scene and is a significant investor in several UK stocks with potential growth stories. These include GlaxoSmithKline (LSE:GSK), Mitie, Pearson, and Tesco (LSE:TSCO). Â
So, as speculation continues, does Silchester have a keen eye for value?
I wrote about Tesco earlier in the week as I think its institutional investors will be meeting management in the coming weeks to encourage action that will benefit shareholders. Tesco is operating under new management, and investors are hopeful a dividend is in the offing.
But investors appear to be running out of patience. I imagine a management strategy, share buyback, or dividend, would go a long way to appeasing relations and improving the Tesco share price.
Tesco’s Q1 results were not outstanding, but they show resilience and signs of growth. E-commerce sales are high, generating 1.3m orders a week. Two-year sales growth came in over 81.6%, while one-year sales growth rose 22.2%. General merchandise sales rose 10.3%, and clothing sales are up 52.1%.
Considering Tesco shares are trading at the low end of analyst expectations, I think they look like a potential deep value investment.
Rise of the activists
With climate change, health initiatives, and political agendas ever-present, activist investor presence has a rising influence on the direction companies take.
Tesco is no stranger to investor activism. It already agreed to raise its sales of healthy foods to 65% by 2025, which Silchester didn’t oppose.
I don’t think investor activism is a bad thing. It can help steer the company in a customer-friendly direction while encouraging consumer loyalty and improving its ESG score.
I’m tempted to buy Tesco shares before its Q2 earnings call in October.
Interestingly, another of Silchester’s considerable holdings is GlaxoSmithKline, which just confirmed details of its consumer healthcare spin-off after months of speculation. This arm is expected to take some of the debt burdens from the leading company to focus on R&D.
GlaxoSmithKline has a Covid-19 vaccine in the works. But many believe it’s too little too late for the world’s top vaccine maker.
For this reason and a lack of profit-making in recent years, activist investor Elliot Advisors has been vocal lately. The firm suggests the group splits further.
I’ve found GlaxoSmithKline to be a disappointing investment. The GSK share price is down 2% in the past five years, despite a promising rise in 2019. For now, I’ll hold off on buying more shares. Time will tell if it’s a deep value investment.