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Market unimpressed as IAG shakes its own foundations

IAG’s announcement last week of its biggest shake-up since it was formed has done little to lift its stalled share price. Despite tough talk of a restructure, 600 job cuts, a slashed dividend and the imminent fire sale of British acquisitions, the stock price barely flickered.

The group’s shares closed last Monday at $3.62. By Tuesday night, as metropolitan newspapers ran forecasts of the bloodletting to come, the stock had eked its way to $3.67.

After CEO Mike Wilkins’ announcement of the restructure, the stock explored some negative territory before rallying ever so mildly to close the week back at $3.67 – five cents up on Monday’s price.

Analyst reaction has been mixed. Citigroup rated the stock neutral, Merrill Lynch rated it “under-perform” and Credit Suisse rated it “outperform”.

IAG’s army of 900,000 retail investors are probably positioned on the fence.

While IAG will book a $350 million charge from the UK divestitures on top of an expected $60 million cost of restructuring, the company will be rid of its poorest performing entities. The loss of 600 Australian staff will free up around $130 million a year.

Mr Wilkins has moved the organisation in line with the successful Promina formula of devolution, and four top executives are departing as the company adopts a slimmed-down corporate model.

Chairman James Strong has also hired more boardroom talent in former Aviva supremo Philip Twyman.

During the briefing Mr Wilkins was clear on the subject of short-term pain. IAG is likely to book a net loss when the company reports its full-year financials on August 22 and it will take time to bed in these changes.