Business Watch: Why corporate divorce is only good for some


Dominic White discusses how the Carphone Warehouse and TalkTalk have experienced very different fortunes since their split early last year

Just as when a couple breaks up one party seems to come off a bit better, so demerged companies tend to have very different fortunes after the split.

That’s certainly been the case with Carphone Warehouse and its former broadband division TalkTalk, since they parted company early last year.

In the past year TalkTalk shares are up by a modest amount, from 125p to 143p at the last count, putting them back to about the levels the company listed when it was spun out.

In contrast, shares in mobile phone retail giant Carphone Warehouse have doubled from 200p to more than 400p.

This will not be lost on Dido Harding, TalkTalk’s chief executive, who has also fared considerably worse in the pay stakes in the past year, than her Carphone counterpart Roger Taylor (pictured).

According to the TalkTalk annual report and accounts, Harding was paid a total of £716,000 in the year to March 31, comprising a basic salary of £500,000, plus benefits of £17,000 and a bonus of £199,000.

But the bonus was only a fifth of what she could have made if the company hit all its targets. Part of the reason was the company’s much-publicised customer service debacle at Tiscali UK, a firm it bought in 2009 that has proved a troublesome acquisition.

Even if you add in Harding’s pension contribution, her pay was overshadowed by that of Taylor at Carphone, whose package broke the £1 million mark, at £1.17 million.

His basic salary was lower, at £440,000, but his bonus was £719,000 – more than 80 per cent of the possible maximum – as the former Carphone finance director hit most of the board’s targets.

He received £12,000 of taxable benefits and benefited much more from an incentive plan dating back to the old Carphone Group, which led to a payout of £1 million.

He also made a paper profit of almost £350,000 as a result of exercising share options in the new Carphone and TalkTalk entities.

Taylor is on the board of TalkTalk where, as deputy chairman, he got £75,000, more than any of the other non-executive directors.

Founder Charles Dunstone got £240,000 in fees as chairman of Carphone and £360,000 as chairman of TalkTalk, where presumably he puts in more hours.

TalkTalk’s board is nothing if not impressive: it boasts founder Brent Hoberman, former Orange director and media veteran John Allwood, and former Tesco executive director John Gildersleeve.

It’s not all been good news for Carphone of late. Taylor has been forced to reconsider the future of the group’s big-box store roll-out with joint venture partner Best Buy, which may have proved a step too far for the company (see last issue for details).

But it didn’t stop Carphone delivering an impressive group profit rise for the last financial year.

Cable & Wireless
Last year’s other big demerger in telco land was the long-awaited split of Cable & Wireless’s business and government operations from the division that owns and supplies broadband, mobile and other communications in 38 countries, many in former colonies including several in the Caribbean.

If you’d invested your money in these business instead of Carphone and TalkTalk when they demerged you’d be a bit gutted.

Cable & Wireless Worldwide, the corporate and wholesale business, listed at £1, but is now trading at less then 50p, valuing it at little more than £1 billion.

Cable & Wireless Communications, which also has a presence in Panama, Macau and Monaco, has fared slightly less badly.

But it is Cable & Wireless Worldwide where the drama has been of late.

Its chief executive Jim Marsh has just resigned after the company delivered its third profit warning since listing.

Not only that, but the latest warning is just 10 weeks into its new financial year.

A slump in orders will mean that underlying earnings will be between five per cent and 10 per cent less than the market had expected, and the dividend will slashed in half to 2.25p.

Marsh will be replaced by chairman John Pluthero, the hard-man executive and former Energis boss, who made his name transforming the old Cable & Wireless and making himself very rich in the process.

“Clearly it has been a very difficult 12 months and it is now important that we take the necessary steps to ensure the future growth of our business,” Pluthero said in a statement.

“I’ll be looking to take a more radical approach to building on our hosting, Cloud and data services business, while becoming more competitive
and efficient in the mature product areas.

“It has been easy to lose sight of what this business could be; it is my intention to reassert and realise that future.”

But news of Pluthero’s move back into the driver’s seat was not enough to stop shares in the company tumbling 13 per cent to 45p in early trading on the day of the announcement.

Frankly, the shareholders are angry, not least because of the profits made by the highly paid top management, while they have suffered.

Earlier this month, Cable and Wireless Worldwide cut bosses’ pay packages after investors expressed anger at its poor performance.

RIM struggles
Shareholders in BlackBerry maker Research In Motion aren’t happy either, it seems.

RIM is coming under pressure from its major shareholders to split the roles of chairman and chief executive at the company, which has highly unusual corporate governance arrangements.

Both roles are shared by RIM co-founder Mike Lazaridis and Jim Balsillie, who are also RIM’s largest shareholders, each holding five per cent of the shares.

But some big investors are planning a protest vote at the annual meeting next month, saying the roles should be split to ensure greater independent oversight and accountability to the shareholders.

Those shareholders have seen their investments tumble from more than $150 a share in 2008 to less than $30 at current levels, as RIM has struggled to cope with intense smartphone competition from Apple and Google.

No wonder they’re a little bit cheesed off.