Secret gems and using strategic sell-down

In large organisations the value of specific assets can seem to get lost in the merger of data in the preparation of consolidated accounts and annual reports. It is extremely difficult companies to revalue existing assets and we are all well aware of the issues about self-generated goodwill and the publicity News Corp received when he tried to revalue mastheads. Many companies have built assets which were necessary as part of an early-stage development of a project but will never return on their own that organisation’s cost of capital. Some of these assets have now become multi-user or may become potentially impaired assets based on the company’s own cost of capital. In the energy industry we have seen the sell-off of pipelines, ports and terminals. The sale of these assets delivers a win-win scenario is generally these infrastructure assets are valued by institutional investors well above the carrying costs within the parent company. Similar gems exist within telcos around the world where they have developed infrastructure assets which they are now required to share often with competitors. Telstra has hidden gold in its mobile distribution network and exchanges. When it is ready, these can be quickly turned into cash.

Paul Raftery