Chapter 11: Structures

In this section:

  • Structures – examples from the text
  • Tate and Lyle demerger
  • The Co-operative Bank – maintaining ethics whilst owned by hedge funds
  • Indicative solutions to questions concluding the chapter (Chapter 11)

Structures – examples from the text

The text features and extensive discussion on the structure of Alphabet/Google which was reorganized around its numerous businesses generating greater transparency for investors. With the Lion’s share of revenue being generated by Google (the ads business) and YouTube, the new structure exposed the subsidiaries to the degree of cross-subsidization taking place and the degree of growth generated by the diverse businesses ranging for home IoT (Nest) and Moonshots.

The text also considers the byzantine structure of Samsung which has the appearance of a conglomerate with subsidiaries enjoying various degrees of autonomy. In reality the company resembles more a Korean Chaebol. These large firms are often highly diversified with their own finance houses. They are often close to government. Samsung remains largely a family firm with a skewed shareholding enabling a controlling minority stake.

By way of contrast, Mark Zuckerberg maintains a controlling minority stake in Facebook.

Tate and Lyle demerger

On 26 April 2021, Tate & Lyle confirmed that they were looking to break the company into two distinct businesses. T&L had been operating in two sectors through two divisions; namely, primary products and smaller food and beverage divisions. The proposal is to sell the primary products division (manufacturer of sweeteners such as Stevia and starches). As a division it competes predominantly in North America against larger companies such as Ingredion and Archer Daniels Midland. The primary products division made revenues of £1.8bn to the year April 2020.

The smaller food and beverage division earned £942m in the same reporting period. The company sees the growth potential in this sector, particularly in the field of products that contribute existing manufacturers such as Nestlé and Mondelez to make their products healthier (less fat, salt and sugar), as higher than the primary products. The margins are also higher.

The justification, however, for the change in structure is shareholder wealth. This is a case of the value of divisions being greater when de-merged. T&L had in 2010 previously demerged its sugar business.

The Co-operative Bank

The Co-operative Bank dates from 1872 and was formed to support the emerging co-operative movement in Victorian Britain. As a member-owned bank, governed under Co-operative principles, is presence in the UK high street grew until the impact of the financial crisis in 2008 and its ill-fated takeover of the Britannia Building Society. That takeover left the bank with a £1.5bn hole in the balance sheet.

The Bank was demerged from the Co-operative Group and effectively rescued by five hedge funds including Silver Point Capital, GoldenTree, Anchorage Capital, Cyrus Capital and the fund manager Invesco. In February 2022 it recorded its first profit for a decade (£31m) and is considering exit strategies for the hedge funds, possibly through a flotation on the stock exchange.

The challenge for the bank was how to maintain the ethics of the brand owned by hedge funds. The Guardian, reported that current CEO, Nick Slape, was quick to emphasise that “the bank’s ethical policies are enshrined in its articles of association, which its shareholders have in effect signed up to. ‘We take it seriously: with real policies that are approved by the board, and a values and ethics committee that monitors it all, and we report it to the Co-operatives UK’,” In effect, the Co-operative Bank is a profit-maximiser run on co-operative principles monitored by the guardian of the co-operative principles, Co-operatives UK.  

Indicative solutions to questions concluding the chapter