You can’t fault Mooky Greidinger for ambition (Dominic Walsh writes). Who else but the Cineworld chief executive would pursue a £1.6 billion takeover of a Canadian cinema operator at a time when his company’s balance sheet was already groaning under the debt taken on to acquire Regal, America’s second biggest chain, for £4.2 billion? Who else would keep insisting that Netflix, Amazon Prime, Disney+ and other home-streaming services were not a threat to cinemas in the face of mounting evidence to the contrary? And who would accept a new long-term incentive plan that could pay out as much as £65 million to both him and his deputy — his brother Israel, 59 — when the company is drawing on government support to survive?
Mr Greidinger, 68, was forced to admit that he’d bitten off more than he could chew and withdraw from buying Canada’s Cineplex (triggering legal action from both sides). And, given the way many Hollywood studios have responded to the pandemic by pushing blockbusters straight to the small screen, it would be amazing if he wasn’t beginning to waver slightly in his conviction that streamers are fishing in a different pool.
As for the new incentive scheme, the scale of which has drawn comparisons with that much-vilified Persimmon reward scheme, there was no change of heart and it was duly voted through yesterday.
The approval required support from 50 per cent of those who vote. Normally, that might have given disgruntled shareholders a chance of voting it down, but with the brothers holding 20 per cent of the shares and voting them in favour of their incentive scheme, a “no” vote always looked unlikely. Add to that the fact that not all investors bother taking part in such votes, the Greidingers started out with about 30 per cent of the votes cast, requiring only another 20 per cent from other investors.
We are told that the company engaged with about 60 per cent of its shareholder base last month and several recommendations were taken on board. For its part, the remuneration committee said that the new scheme was “necessary to reward and incentivise the executive directors and other senior executives in light of the challenging market conditions Cineworld faces globally”. It was felt to be fair, in particular, because management had voluntarily deferred salaries and bonuses during the pandemic.
That — quite rightly — cut little ice with proxy advisory groups. Glass Lewis argued that “executives appear eligible to receive virtually unlimited remuneration”. ISS said that it did not support incentive schemes that were based only on share price targets. It also expressed concern at the provision allowing the awards to be accelerated in the event of a takeover or change of control.
While the rewards, which at the maximum level would pay out a combined 4 per cent equity stake in Cineworld over three years, will be spread across senior management, the company had admitted that investors “have different perspectives on remuneration structures and a variety of views were expressed on the detail of the proposals”. In other words, it’s ploughing on regardless.
One of its British landlords put it more bluntly: “It’s a slap in the face for all of the tenants who are being asked to fund significant rent concessions and deferments. The Cineworld board clearly don’t have a lot of emotional intelligence.”
Cineworld, which started life in 1995 and operates under the Cineworld and Picturehouse brands, has 778 cinemas, but as a result of Covid lockdowns and delayed film releases only its European cinemas remain open, with its British and American estates firmly closed.
Advice Avoid
Why Cineworld may well survive and prosper, but Tempus cannot support such excessive executive rewards
Baillie Gifford US Growth Trust
President Biden may not be the biggest fan of Big Tech, but talk of a cooling in relations between Washington and Silicon Valley is unlikely to stretch to New York (Greig Cameron writes). Wall Street has relished the rise of America’s technology giants, with their soaring share prices and market values paying off handsomely for traders and investors.
Baillie Gifford is one such. Several of the Edinburgh-based investment house’s funds — offering a route for British investors to tap into what’s happening across the pond — have done well by picking the likes of Netflix, Amazon and Tesla, including its US Growth Trust. Launched in March 2018 having raised £173 million from investors, by the end of December last year the trust’s assets were close to £860 million and its share price had increased by more than 220 per cent since its listing.
Tesla is its largest holding, while Alphabet (the Google owner), Netflix and Amazon are also in the top ten, along with others such as Peloton, the fitness technology group, and Shopify, the ecommerce business. Moderna, which has come to prominence as a result of its Covid-19 vaccine, is also in the trust’s portfolio. In addition, its stockpickers have a remit to hunt down privately owned companies in the United States and there is flexibility to put up to 50 per cent of the trust’s assets in unlisted businesses.
Tempus rated the trust a “buy” in early September last year, in part because it needed to find only one big winner yet to hit public markets. Well, this month Affirm, an online lender, raised $1.2 billion when it was floated and was valued at about $24 billion after its shares soared. That followed Airbnb, the short-term holiday rental specialist, being valued at $100 billion on its market debut in December. The US Growth Trust had stakes in both. SpaceX, Elon Musk’s spacecraft venture, Warby Parker, an online eyecare and glasses retailer, and Stripe, which provides online payment infrastructure, are among the other private businesses that the trust holds that already have multibillion-dollar valuations.
The trust’s shares closed 2020 at 328p and have started the year strongly, rising a further 5p, or 1.4 per cent, to 354p yesterday.
Advice Buy
Why Private businesses look set to deliver more winners
