Analysts are stupid

There's a great bit the FT today, with AllianceBoots chair Sir Nigel Rudd slagging off analysts. Seems like it's primarily aimed at the sell-side.

Sir Nigel Rudd has rounded on retail analysts, describing them as “stupid” for failing to see the value in Alliance Boots after last year’s £7.78bn merger of the retail chain with Stefano Pessina’s Alliance Unichem drugs wholesale business.

“When I did the Alliance Boots deal, everyone hated it. The greatest pleasure out of all of this has been the analysts,” said Sir Nigel. “I actually love that. They are so stupid most of them ... they are very bright or stupid.

“They write all this stuff, but they don’t sit back and say healthcare is a growing business, people are getting older, they need more medicine.

“What I saw in Boots was a pharmacy ... and what was more logical than merging with a chemist. And they didn’t get it.”

Asked if he thought analysts were a waste of time, Sir Nigel said: “Yes, mostly. I think the buy-side shareholders have a lot of talent in-house and I think analysts in investment houses are there to buy and sell stock or assist the salesmen buying or selling stock. That is what buy-side people tell you; they read the analysis but they aim off from it.”

Mr Pessina, executive deputy chairman, has repeatedly said his decision to take Boots private less than a year after the £7.78bn ($15.6bn, €11.4bn) merger was largely driven by the public market’s lack of understanding and undervaluation of the business. However, Sir Nigel said Boots’ success was not determined by the ownership structure. “I don’t buy this argument that you can’t be innovative and do difficult things as a public company, but that is the view Stefano has got. It is not my view.”

In early March, just before Mr Pessina and Kohlberg Kravis Roberts announced a £9.7bn indicative offer (they have since agreed to pay £11.1bn), only four out of 21 analysts had the stock on buy, with 10 on a sell.

Philip Dorgan, analyst at Panmure Gordon, who had Alliance Boots on a sell before the bid war, said there are “two sides to the equation”. “I have some sympathy with Nigel Rudd, but what he is saying is that we needed better understanding of Alliance Boots and that is part of his responsibility,” he said.