COMMENT : A painless refinancing for Rupert Murdoch

Whatever the commercial benefits that eventually derive from the MCI/News Corp link-up, if any, there can be little doubt that, from Rupert Murdoch's point of view, this is primarily a financially driven transaction. Beneath the starry-eyed rhetoric of the multi-media revolution, there is a cold and steely logic to what he is doing. The same can hardly be said of MCI and its 20 per cent shareholder, BT, which have agreed a deal so heavily weighted in Mr Murdoch's favour that you begin to wonder whether MCI's reputation as the golden boy of the telecommunications industry is well deserved.

Nobody really knows whether vertical link-ups of this type, between culturally and organisationally different programming and distribution companies, are going to work. Convergence, like focus and right-sizing, has become one of the great corporate clichs of our time and of the three, it is so far the least proven. If the aim is lock-out, preventing other distributors gaining access to product, it is hard to see regulators tolerating it for long. About the best that can be said about deals of this kind is that they represent a bet on the future. They may work, they may not. The point is, however, that from Mr Murdoch's point of view, it doesn't really matter. If convergence is the way of the future, that is an added bonus, for the deal will already have achieved a main purpose - refinancing News Corp without significant damage to his own controlling interest in the empire.

What MCI has given Rupert Murdoch is what New Corp's institutional shareholders resolutely refused to give him in the past: a way of financing future growth without diluting his control. Mr Murdoch's News Corp gets up to $2bn to spend without jeopardising its chairman's hold on the company he has so daringly and so speedily built. He is free to continue to grow his huge empire, answering neither to shareholders nor bankers.

Consider the salient aspects of the MCI-News arrangements. MCI cannot vote against Mr Murdoch and his family, nor can it sell its shares without surrending their voting rights. Far from diluting his position, then, Mr Murdoch has strengthened it. True, MCI gets first call on any shares Mr Murdoch and his family may sell in the future. But he is unlikely to do so any time soon.

To be fair on MCI, there may well be a commercial logic in linking telecommunications with the providers of content - film, financial information, television and the like. The office and home of the future are inevitably going to get some of their information via the telephone network. But commercial logic is not quite enough to explain the terms of this particular alliance. There is precious little detail from either company about how it will actually work, and little sign amid all the brouhaha that they have properly thought it through.We know the marketing experts at MCI are masters at the art of selling. We also know that News Corp is a premier content provider, producing everything from films to newspapers and business date. We do not know, however, what products their joint venture will sell, beyond the hype-ridden standbys of video-on-demand (still facing image quality problems) or on-line news services cheap enough to be affordable in the average home.

It could be argued, as MCI did yesterday, that all telecommunications companies have to line up partners among the producers of information and entertainment. If MCI didn't do a deal with Mr Murdoch, AT&T, Sprint, or one of the Baby Bells might have. That may explain MCI's willingness to pay over the odds for a stake in News Corp. It is equally possible, however, that like so many before them, MCI executives have simply fallen victim to Mr Murdoch's legendary charm. MCI is as badly locked in as it possibly could be and it may end up paying the price.

Greater transparency is what we are getting

In its desperation to salvage something from the wreckage of economic policy after the humiliation of Black Wednesday, the Government boxed itself in to an ambitious inflation target and threw the key to the Bank of England. Judging by yesterday's performance, the Bank is determined to keep it. Its warning that the Government would breach that inflation target if interest rates were left unchanged was as stark as it was uncompromising.

For all his characteristic insouciance, Kenneth Clarke is emerging the loser in this clash of wills between Government and Governor. It is Mr Clarke's credibility on the line, not Eddie George's, following his surprise decision to leave interest rates on hold last week.

What this suggests is that the new arrangements granting the Bank more of say in the formation of economic policy are working. Unlike previous politically inspired decisions on interest rates, this last one has been exposed to the full glare of publicity. Unlike Nigel Lawson, who invoked inflation as the judge and jury of the efficacy of monetary policy, Mr Clarke has the Bank sitting in judgement.

That doesn't necessarily mean the Bank is right. It has been over-pessimistic in the past in its projections for inflation; it may be over-pessimistic now. Its warning about inflation in two years' time is as fallible as all forecasts. But at least decisions that were once taken behind closed doors in Whitehall have been brought out into the open. Greater transparency was the promise and greater transparency is what we are getting. If the Government is now preparing to renege on its commitment to low inflation, it will have to do so overtly, not covertly.

Divided counsels are usually regarded as a fatal distraction, whether in warfare, politics or the running of companies. But Britain's experience has tended to be the reverse. The country has suffered from too many single- minded economic policies forced through by an over-centralised state.

The latest of these is arguably the inflation target itself. Set by Norman Lamont in the immediate aftermath of Black Wednesday, it committed the Government to a particularly narrow range of underlying inflation - 1 to 2.5 per cent - by the end of the parliament. As Roger Bootle, chief economist of HSBC Greenwell, points out, this is just the latest in a succession of all-or-nothing economic objectives to which the Government has pledged undying devotion. First there were monetary targets, and then there was the exchange rate. Now there is the inflation target.

As it happens, the inflation target is due to be reformulated, by simple virtue that we are now within two years of the end of the parliament. The trouble is that, given Mr Clarke's credibility problem, any reformulation may well be interpreted as an attempt to redraw the goalposts.

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