Reference no: EM133087208

In its 2017 annual report, Washington H. Soul Pattinson ('Soul Pattinson' or 'Pattinson') reported that profit after tax attributable to shareholders for the year ended 31 July 2017 was AUD333.6 million, an increase of 123.3% compared to the AUD149.4 million of the previous year (at the time of the report, an Australian dollar was worth about 0.77 US dollars). There had been an annual shareholder return of over 12% over the previous 15 years.

Soul Pattinson is one of the oldest public companies listed on the Australian Stock Exchange. Its principal activities include coal mining, funds management, bulk handling, commercial television operations, television production, merchant banking, telecommunications carrier, retailing of pharmaceutical products, and the processing and marketing of seasonings, essences, food colours, perfumes, aromatic chemicals and fruit juices. The Australian newspaper reported in April 2015 that Todd Barlow had been promoted internally to the position of CEO of Soul Pattinson. He replaced Peter Robinson, who had been an executive director at the company since 1984.

The company reported that its success was grounded in successive family members who valued the history of the company but were able to adapt to changing times and economic conditions. Several generations of the Pattinson family had served the company. But the company's diversification strategy was now seen as unfashionable by some analysts and its shares had sometimes underperformed when compared to strong gains elsewhere in the Australian stock market. It had reported disappointing profits in some years due to the impact of a stronger Australian dollar, increasing transport costs, and bad weather affecting its construction business. It had successfully rebuffed a recent attempt by outside investors to unbundle some of Pattinson's complex cross-shareholdings; the outside investors had claimed this would unlock about $1 billion (Australian) in shareholder value.

Robert Millner, Pattinson's chairman, had previously told the Australian Financial Review, 'When you have seven or eight businesses, you're always going to have one or two doing extremely well and one or two doing badly, so you always have that spectrum of things doing well at one end and not so well at the other.'

However, some analysts have criticised the company. 'I think there's a risk that they may be trying to do too many things,' Argo Investment Management MD Rob Patterson had previously told the Australian Financial Review. 'They're either going to have to shed some businesses or get more involved in the management of them.' Millner disagreed: 'People go home to a house made of bricks with a tile roof, they rely on coal-fired electricity, they watch TV on a station we might own, they make a phone call and use the Internet, possibly on our network, they might need products from chemists' shops we are involved in supplying. And on the weekend, when they go to the [football], they'll probably eat one of our meat pies whether they're at the rugby or the [Australian Football League].'

Millner told The Australian newspaper on the occasion of Barlow's promotion that he personally had no plans to retire and just satisfy himself with sampling some of the many products the company made. 'My wife doesn't want me at home,' he joked to the newspaper. As for Barlow, he also made it clear to the newspaper that he was not intending to make any dramatic changes: 'After working with the group for 11 years and understanding their investments and the way they invest, I don't see any real need to change,' he told the newspaper.

Questions

(a) Why are strategies like Pattinson's corporate strategy now unfashionable?

(b) Why has Pattinson's strategy been sustainable over the course of the 20th century?

(c) What developments could encourage Pattinson to modify or abandon its conglomerate strategy in the future?

(d) Does Millner's statement about the variety of products the company supplies to households help justify its strategy?