Saga took what Yes Minister’s Sir Humphrey would call a “brave decision” in quitting the race to the bottom on insurance premiums.
The pensioners’ favourite brand paid a high price for its boldness, with a total collapse of the shares and the resignation of its chief executive.
The shares plunged so low that Saga’s equity became worth just £490 million. Given that its debt is £390 million, that clearly indicated some sort of fundraiser was needed.
So, what to make of the arrival of activist investor Elliott as a shareholder?
Will it demand the thing be broken into its parts and sold? Perhaps: the insurance and cruises operator sides of the business are subscale and have high central overheads. But Elliott likes the Saga brand; splitting it could be damaging.
Does it just think the shares are cheap and present the chance of a quick buck when they recover? Risky: Saga’s small size these days means the shares are illiquid, so selling a big stake could crash the share price even if they do recover.
Does it reckon the shares will recover if it reverses the strategy and comes up with a plan B? Difficult, given that Saga has tried numerous other options over the years.
Perhaps Elliott wants to take the business private and drive the new strategy harder with better management (it couldn’t get much worse). It’s early days yet, but signs are that punters are buying the new insurance price structure.
Earnings are better quality because customers sign up for three years of cover rather than just one, and Saga avoids commission-hungry price-comparison websites.
Whatever the plan, Elliott’s arrival means Saga’s later years will be anything but dull.