Why a change of name is often a cheap trick
You can put lipstick on a pig but it is still a pig. This colourful analogy came to mind after the news that Royal Bank of Scotland (RBS) plans to seek shareholder approval to change its corporate name to NatWest.
This would represent the third high profile name change of a UK-listed firm in the last three months. In December Mike Ashley’s retail vehicle Sports Direct became Frasers (FRAS) followed by Bovis Homes becoming Vistry (VTY) in January.
Each company could point to some justification for the change. NatWest is RBS’ biggest brand and Sports Direct was looking to move upmarket so Frasers is probably a more appropriate moniker for that strategy. Adopting the Vistry brand was part of a bigger strategic change which saw Bovis acquire assets from Galliford Try (GFRD) at the start of 2020.
However, it is hard to escape the feeling that the respective companies are, to some extent, trying to sweep negative history under the carpet.
WHAT’S IN A NAME?
RBS is still most synonymous with its part in the credit crunch and the actions of its disgraced former CEO Fred Goodwin. The Sports Direct chain has a reputation as a ‘pile ‘em high, flog ‘em cheap’ operator and Ashley has had a tortured relationship with the City. The name changes could be a way of getting people to forget the past.
A corporate rebranding isn’t going to alter the fact RBS is more than 60% owned by the state or that sports retail accounts for more than three quarters of Frasers’ earnings.
As for Bovis, it previously ran into problems over its build quality, although at least current CEO Greg Fitzgerald has gone a long way to fixing these issues.
For larger companies like these, a change of name can feel like an insult to investors’ intelligence, as if somehow a new name will wipe away all of its past problems.
At least a quick Google search will likely reveal the truth about a renamed large cap’s past.
More insidious are the small cap companies which run into trouble and change their name in an attempt to secure capital from new investors who haven’t been burned before.
SEEKING A NEW IDENTITY
A name change can also seem like an attempt to pretend a business is something which it is not, such as Imperial Tobacco’s decision to rebrand as Imperial Brands (IMB). While the company is moving into areas like vaping, it’s not like changing its name is going to make everyone forget it sells millions of cigarettes every year.
It certainly hasn’t spared the company from a big sell-off as the sector faces a regulatory backlash. Since it adopted its new title in February 2016 Imperial Brands’ shares have halved in value.