'City's most powerful woman' is just doing her job

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The Independent Online
It is always possible that Mercury Asset Management will today do the reverse of what everyone expects and back Forte with its 14.1 per cent stake against Granada. On past form that is not very likely, however, and come tomorrow night, MAM's formidable head of investment, Carol Galley, will no doubt once again be accused of selling an incumbent management down the river. This, it will be recalled, is what she was accused of two years ago when Granada was bidding for LWT.

The lambasting she received at that time from Greg Dyke, then chief executive of LWT, began a process of demonisation which seems to have reached a crescendo in this bid. Carol Galley, or "the City's most powerful women" as she is often called by the newspapers, is portrayed as the epitomy of the evil City professional, prepared to surrender socially and economically important companies into the hands of asset-stripping mavericks for the sake of short-term gain, top-drawer bid fees and bumper bonuses. A few myths need exploding here.

Not only is this a cliched view but it also shows a fundamental misunderstanding of what fund management is about. Fund managers are the people entrusted with our pensions and savings and their job is to seek out the best return they can get for our money. Some, like Carol Galley, are good at it and they get handsomely rewarded for their efforts. If there is one thing they should not be doing, it is getting involved in public policy issues. If a company is to be given special protection, that is a matter for government, not fund managers.

The Forte and LWT cases are in truth very different ones. In the LWT case, MAM backed a successful management team - albeit one that on the back of a monopoly franchise was able to reward itself well beyond the point of common decency - only to sell them out when Granada arrived with its money bags. Here the investment decision was simply that Granada's price was too good to refuse. This was also an industry which was fast consolidating - LWT was always going to be prey rather than predator.

In Forte's case, MAM built up its commanding position not because it believed in the management - rather the reverse. Here was an undervalued asset; if incumbent management wasn't able to do anything about it, MAM figured, eventually someone would come along who would. This is not the same thing as putting a company "in play", and Ms Galley fiercely disputes suggestions that she in some way encouraged Granada's Gerry Robinson to bid. From an investment perspective, the strategy has plainly worked. The only judgement MAM needs now to make is whether Forte shares are going to be worth more, or less, if Granada is turned away.

It actually matters not a jot to the economic health of the nation if Forte is broken up, or how much is taken out of this company on the way in the form of City fees. It matters to Granada and its shareholders, for if it all goes wrong, they are going to lose out heavily. But to the nation? What does it matter who owns the Grosvener House or Little Chef? Forte is in essence no more than a property company with the added complication of providing decent service to guarantee reasonable occupancy levels. Nobody would complain about the break-up of a property company. But even if it did matter, is this really something that Ms Galley should be factoring into her decision? None of the pension fund trustees who employ her would thank her if she did; they might even fire her.

It is plainly the case, however, that fund managers are, like everyone else, going to have to become much more accountable for their decisions. Once upon a time, these were faceless, anonymous people perfectly able to hide behind the facade of commercial secrecy and say simply: "It's nothing to do with you". As Carol Galley has shown, once you raise your head above the parapet by taking large, strategic stakes in well known companies, the fund manager and what he - or as often she these days - is doing become objects of public fascination.

Rightly so, too. For many managements they hold the power of corporate life and death in their hands. MAM and the others need to start explaining the general principles that lie behind their investment decisions much more fully. To expect a public statement every time they do anything, rather in the nature of a listed company, is perhaps going too far. But some glasnost and perestroika in the affairs of the main fund management groups is long overdue. There is also nothing like pre-emption. Come Tony Blair's stakeholder economy, one way or another, they are going to be held to account.

Investing in Orange proved to be no joke

It would have made a good joke five years ago to suggest that Hutchison Telecom, main investor in the ill-fated Rabbit telepoint system, was about to make a fortune out of pouring money into the much more complex digital cellphone technology. But times change and yesterday's joke seems to have become today's goldmine.

Six months after buying Rabbit, Hutchison made what at the time seemed a bizarre change of course. It bought 70 per cent of what was then called Microtel, Britain's fourth cellular telephone company. BAe, one of the founder shareholders in the development consortium, retained the other 30 per cent. The company later became Orange and next March it floats on the stock market at a valuation that could be worth as much as pounds 1.5bn for Hutchison and pounds 700m for BAe.

The idea of the flotation is to raise pounds 700m to pay off the debts. This would value the company at pounds 2.8bn. The number is an unofficial one from the telecoms analysts at Kleinwort Benson. But it is presumably the one the vendors have in mind since Kleinwort is co-lead manager for the flotation with Goldman Sachs. The selling point for Orange is not its share of the total cellphone market in the UK - a modest 7 per cent, far behind Vodafone and Cellnet - but its position in digital telephones, the higher quality system that is rapidly displacing the old analogue phones.

The cellphone market is reckoned to be growing at 150,000 customers a month, of which 100,000 take digital systems - and 30,000 of those are Orange's. Altogether, the company claims 26 per cent of the digital market from a standing start in April 1994. Kleinwort forecasts that as the market turns progressively digital, Orange will have a quarter of all mobile phones by 2005. What gives these optimistic-looking growth projections some credibility is the current structure of the market. There is a ceiling on the total capacity the two pioneer companies can offer in digital and analogue services combined. It is thought they may not be far off that ceiling, which is set by the airspace available.

The bulk of their customers are now using analogue. The delicate problem Vodafone and Cellnet have to resolve is how fast to shift to digital within their fixed capacity. Too slow, and they let Orange in. Too fast, and they upset the cash cow of the existing customer base of analogue sets. Orange has a tactical advantage - at least for a year or two. Even so it might seem a bit of cheek to float the upstart newcomer at a valuation of getting on for a half that of the market leader, Vodafone.