This was really an interesting take on the acquisition, thanks for sharing your thoughts!
I don't agree, though, with this point: "This wave of ESG-driven fund flows forced asset managers to adopt strict no-tobacco policies, crushing tobacco stock valuations regardless of their underlying cash flow generation."
The share prices of big tobacco were riding all-time-highs in 2017 and early 2018. Hence, BAT's acquistion of Reynold's America proved to be particularly ill-timed.
Hi Simon, I see your point. Indeed the valuation of tobacco stock remained high in 2017-18. While the seed of the ESG-driven fund flow was planted around 2017-18, it took time for asset managers to establish their ESG policy and unwind their multi-billion positions; hence, the valuation de-rating didn't happen overnight in 2017-18.
Not much trust in the management; believing the best course of action is to tie their hands.
But it's so true. Having too much cash is usually a dangerous place to be in, leading to waste and stupid decisions.
This was really an interesting take on the acquisition, thanks for sharing your thoughts!
I don't agree, though, with this point: "This wave of ESG-driven fund flows forced asset managers to adopt strict no-tobacco policies, crushing tobacco stock valuations regardless of their underlying cash flow generation."
The share prices of big tobacco were riding all-time-highs in 2017 and early 2018. Hence, BAT's acquistion of Reynold's America proved to be particularly ill-timed.
Hi Simon, I see your point. Indeed the valuation of tobacco stock remained high in 2017-18. While the seed of the ESG-driven fund flow was planted around 2017-18, it took time for asset managers to establish their ESG policy and unwind their multi-billion positions; hence, the valuation de-rating didn't happen overnight in 2017-18.
A very well written piece, thanks for posting!