A calculated gambler in the Goldsmith style

COMMENT: `Mr Arnault's latest manoeuvring in the Guinness/Grand Metropolitan saga suggests either stupidity on a grand scale or a determination of such steel and persistence that maybe, just maybe, he will end up getting his way'
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Who says there will never be another like Sir James Goldsmith? Bernard Arnault may not be of quite the same angry, iconoclastic temperament as Sir James, but he certainly seems to share some of the late financier's capacity for surprise, the grand gesture, and the calculated gamble. For whether there is also brilliance and vision in his thinking, we'll have to wait and see.

His latest manoeuvring in the Guinness/Grand Metropolitan saga suggests either stupidity on a grand scale or a determination of such steel and persistence that maybe, just maybe, he will end up getting his way. So what's his strategy here? From the outside it certainly looks a costly one. He's selling down his stake in Guinness at prices of between 580p and 590p in order to build up his position in GrandMet at prices of up to 630p. Since under the terms of the merger the two prices are meant to be the same, this is plainly a high risk enterprise.

The point is, however, that Mr Arnault has given a legally binding undertaking to Guinness not to increase his stake in that company beyond 14.2 per cent. He's under no such obligation with GrandMet, where his stake last night moved over the 10 per cent mark. That now gives him the ability to requisition shareholder meetings in both companies, at which he could presumably get a full hearing for his alternative proposals. But actually that probably isn't his game, was the word from the Arnault camp last night. Probably is the operative word here, for the game keeps changing.

The more likely strategy is that he will persist in selling down Guinness and increasing his holding in GrandMet until he gets to the position where he can block the merger altogether. To go ahead, the merger needs 75 per cent of voting shareholders in both GrandMet and Guinness to approve the deal. If he buys something over 20 per cent of GrandMet - an option closed to him in Guinness - he only needs limited dissent among other shareholders to stop GrandMet proceeding.

The mere threat of this happening may be enough to bring George Bull, chairman of GrandMet, to the negotiating table. The downside for Mr Arnault, is that if he's forced to go through with the threat, then he'll certainly lose a packet on his GrandMet stake building as the share price returns to more normal, pre-merger proposal, levels.

The gamble is a mighty one. Mr Arnault flies into town tonight to do the rounds of sympathetic institutions and analysts. The game has a long way to go yet.

Nothing stops the irrepressible Brian Souter, not even the departure of Britain's best known railway millionaire from his trainset. Not content with cornering the bus market and the juiciest bits of what used to be British Rail, the chairman of Stagecoach is eyeing up the London Underground, providing of course that the mixture of capital and risk is right - which is Souter parlance for whether he can steal it from under the nose of the taxpayer.

Should it decide to go down the Tube, the Souter machine may find that John Prescott is not quite the soft touch that Sir George Young proved to be. He may also discover that the Underground, with its insatiable appetite for capital is not the money spinner that the buses and, unlikely as it once seemed, the trains have shown themselves to be.

Mr Souter and the clever chaps around at UBS could no doubt find some ingenious way of keeping Stagecoach's financial exposure off balance sheet. But is the company's star riding high enough for this kind of expansion, or indeed the growth through acquisition that Mr Souter still sees as possible.

Since the fiasco at South West Trains, when incidentally, this column called the top of the market for Stagecoach, the shares have gone nowhere. Indeed they have underperformed the market by close to 10 per cent as the realisation dawns that Mr Souter is mortal after all.

In these exuberant markets anything is possible, of course, and Stagecoach has ridden high on the wave of froth. But all the signs are that the business needs to concentrate on consolidation for the time being.

The regulatory environment can only get harsher - both for buses and trains - and, for all Stagecoach's talk of leading the investment revival of the rail industry, it will rely on a sceptical government agreeing to extend SWT's franchise for Mr Souter to part with more money for rolling stock.

Perhaps it is a sign of the times that, having made his pounds 36m by selling Porterbrook to Stagecoach, Sandy Anderson has now found better ways to spend his money and his time than running a rolling stock leasing company. Until recently, Stagecoach has proved a rollicking good ride for investors. The judgement they now have to make is whether to follow Mr Anderson's lead.

Members of the Treasury Select Committee asked Gordon Brown the same question in about twenty different ways yesterday. Should he not have used the Budget to clamp down on the impending consumer boom, limiting the need for interest rates to rise? The Chancellor gave the same answer twenty times. He would not relapse into fine-tuning, but rather would use Budgets to set a medium term framework.

What's more, Mr Brown said, he was already being very tough on the public finances. There was no way to put these on a sustainable footing without making difficult choices. Everybody always expected the Chancellor to make these kinds of statement in office - he said the same things repeatedly in opposition. But he has taken MPs and the City alike aback by walking his talk. In a variation on the classic technique used by teachers, he tells us he's going to be tough, he is tough, and he tells us he has been tough. We'd better believe him.

Yet many people have mixed feelings about authority figures to whom they have awarded the description "iron". The Iron Chancellor arouses apprehension as well as admiration amongst those who ought to be in agreement with his views. There is a great reluctance to accept any short-term pain whatever the long-term gain - hardly surprising given the history of phrases like "if it isn't hurting, it isn't working" in British economic policy.

Mr Brown's message is not so lacking in subtlety. He accepts that the strong pound is causing grief, but sees it as the penalty being paid for his predecessor's mistakes - chief of which was trying to manipulate the economic cycle in the short term for political advantage. We should be grateful the new Chancellor seems to be made of sterner stuff. But then with an overwhelming majority and the next election five years away, he can for the time being afford to be. Arguably, he should be sterner still.

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