Allquiet closes the door before the horse bolts

Click to follow
The Independent Online
Allquiet is not a word easily associated with one of Britain's most acquisitive companies, which is presumably why it was chosen. Registered as a company just three years ago, it has since become involved in some of the biggest takeover situations in the land. It first emerged during Granada's bid for LWT. It then reappeared during the Forte showdown and is now reincarnated for a third time as a way of getting around the law governing concentration of media ownership.

Until the Broadcasting Bill gets the Royal Assent this summer, Granada - with two ITV franchises already under its belt - is not allowed to own any more than 20 per cent of Yorkshire. Granada's market raid for a further 10 per cent puts it in breach of that limit since it already owned nearly 14 per cent of the company. Step forward Allquiet, now reborn as a joint venture with Granada's merchant bank adviser, Lazards. Allquiet Investments is to be used as a warehouse for the balance of the shares until the law is changed. So far, the Independent Television Commission has tolerated wheezes of this sort, but Granada's use of the scheme plainly represents something of a leap forward, for the clear intention is to block out other potential bidders for Yorkshire.

With Clive Hollick's MAI also sitting on a big shareholding in Yorkshire, there was obvious potential for a bid battle. Indeed a primary reason for MAI's synergy-less merger with United News and Media is to give the critical mass needed for takeovers of precisely this sort. Granada's move is designed to make a rival offer from MAI as difficult as possible. MAI is putting a brave face on developments but there is no hiding its disappointment; this is a setback.

Granada is plainly Yorkshire's partner of choice in the present wave of media consolidation. Granada already sells Yorkshire's airtime through Laser and the two have a joint venture in international sales. The franchises are adjacent and the two managements apparently get on well and see eye- to-eye.

Furthermore, Yorkshire would make Granada into Britain's leading independent programme producer. It would also gain Bruce Gyngell, perhaps more of a curse than a blessing but undoubtedly one of the great talents in British television.

So why not bid immediately and let Allquiet hold the illegal balance? For a start there is always the possibility that the Broadcasting Bill won't go through in its present form. If it doesn't, a lot of people are going to get badly burnt; Granada doesn't want to take that risk. Then there is the little matter of Granada's last acquisition, pounds 3.9bn worth of it still sitting there waiting to be digested. Granada may have "no present intention" of bidding, but bid it eventually will.

We now know what Gerry Robinson wants to do and we half know what United News and MAI are up to. The question still on everyone's lips is "What is Michael Green going to do?" Carlton has yet to show its hand; it can only be a matter of time.

Grand designs at Rentokil

Clive Thompson of Rentokil is one of Britain's most ambitious, self-assured and talented chief executives. Everyone makes mistakes, however. Arguably his first was to commit to 20 per cent earnings growth, year in, year out. Over the past two years he has struggled to deliver; this is quite a challenge for anyone and there are lots of people just dying to see him stumble. Still, he made this cross for himself.

BET could be his second. To deliver on his earnings promise, Mr Thompson plainly needs acquisitions, for he has already squeezed as much as he can out of Rentokil's traditional business in pest control and its new add-ons in security. But BET is quite a bite for anyone - Rentokil will have to bid half its own market capitalisation to secure the company. Over the past three years John Clark, BET's chief executive, has managed to settle the group but it remains a rag-bag of largely unrelated and underperforming service companies. Mr Thompson plainly thinks he can do for BET what he did for Rentokil. The City is not so convinced and it hammered Rentokil's shares yesterday.

In selling this deal, if it ever comes to consummation, Mr Thompson is going to have to demonstrate that he can indeed make these businesses sing. Much will depend on the attitude of Rentokil's majority shareholder, the Dutch industrial holding company Sophus Berendsen. It is, of course, supportive, but is it going to let this deal dilute its shareholding, or is it going to back Mr Thompson's grand designs with real money?

The ministry goes both ways

The idea that the Ministry of Defence is against any further consolidation of the defence industry is not an obvious one, since last year it positively encouraged the acquisition by GEC of the entire submarine-building capability of the UK. But in fact the department is able to face both ways, without being totally inconsistent.

Allowing consolidation in specific defence industry sectors is one thing and can make sense. But accepting that a combination of British Aerospace and GEC would be a good thing for the UK is an issue of a different order altogether. This wider consolidation would almost certainly be a disaster.

The political and economic argument in favour is the Heseltinian one that a single defence contractor would produce a giant national champion able to compete at world level with the US and wipe the floor with Continental Europe's ailing defence industries. Sounds good - but the reality of monopoly is usually rather different.

No matter how sophisticated the monitoring and contracting systems of the Ministry of Defence, it would almost certainly lead to flabbiness and complacency at home. It is hardly necessary to mention the lessons of consolidation for its own sake that have been displayed by a Daimler- Benz hellbent until last year on taking over and running everything to which the tag engineering could be attached. Its costs went out of control and it lost its grip on its markets.

GEC is not a good example of the benefits to shareholders either of having a tight grip on crucial defence industries. The retort to any investor who thinks a national monopoly might be better for earnings per share than open competition can be found in GEC's poor long-term delivery of shareholder value. As for British Aerospace, in the space of 18 months it has demonstrated the effectiveness of market forces in making managements think on their feet. A basket case in 1993 proved one of the stock market successes of 1995.

This is one of those cases where outside pressure - including the threat of a GEC takeover - produced the goods. There is no reason to think the recovery would have been any better if GEC had taken over BAe when it wanted to, in the early 1990s. Both companies could benefit from collaboration and alliances in individual businesses - but not necessarily with each other.