Comment : Power by courtesy of good ol' Atlanta, Georgia
`Presented as a genuine merger to create a new world-class transatlantic company in power generation and distribution, it might just about be possible to sell this deal to a sceptical Parliament'
Wednesday 17 April 1996
But just listen to this. Where there's a will there's a way. Properly presented, as a genuine merger to create a new world-class trans-Atlantic company in power generation and distribution, it might just about be possible to sell this deal to a sceptical Parliament. Everyone else is merging, growing bigger and going global. Why confine power generation to its narrow domestic market?
Capitalised at more than $15bn, Southern Company of the US could certainly afford to bid, highly geared though utilities tend to be in the US. But plainly it needs to tread carefully. If it were to charge in with a hostile takeover, it probably wouldn't stand a chance. This is a government desperate to hang on to power for as long as it takes for that elusive feel-good factor to show through in the polls. Ministers are hardly going to allow a highly charged City takeover battle to upset the apple cart.
Ideologically, they may not care very much if more than a quarter of Britain's generating capacity ends up in American hands. This government's view of these things has long been the purist one that provided the utilities are properly run and regulated, it doesn't really matter where they are owned and by whom. However, with the Government's parliamentary majority virtually non-existent, ideology is not the guiding factor.
Labour MPs would not be the only ones throwing up their hands in horror. There would be plenty of Little Englander Tories joining them. Quite how the Government would choose to exercise its golden share in these circumstances is anyone's guess. To make this deal work at all, therefore, Southern has to sell it as a genuine partnership, with a real and very senior role for British management in the merged company. Could it be made to work? Much stranger and more difficult transactions than this one have. So why not? The balls are rolling. All depends on whether National Power's John Baker is prepared to play.
PFI critique is a familiar one
The poor old Private Finance Initiative has taken such a battering of late that Sir Alastair Morton, its erstwhile chairman, must be sorely tempted to forget about Eurotunnel's woes for a moment and re-enter the fray. The PFI has all the hallmarks of a financial nightmare in the making almost too good for a bruiser like Sir Alastair to miss. If he did bring his crisis management skills to bear again he would find himself on familiar territory - trapped between duplicitous ministers on the one hand and whingeing building contractors on the other, with MPs sniping from the rocks.
The latest critique of the PFI from the Commons Treasury Committee journeys along a familiar road. Despite one curious and out-of-context reference to the PFI as "very imaginative and laudable", the MPs make it pretty plain that it will be time for the concrete overshoes sooner rather than later unless things start to go right.
There are two schools of thought about the PFI, both of which get a good airing in the committee's report. One is that the PFI will fail miserably to live up to expectations, leaving an embarrassing and large hole in capital spending plans for this government or, more probably, its successor to pick up.
The other is that the PFI succeeds beyond everyone's wildest dreams and results in a deferred public spending binge of such huge and yet unquantifiable proportions that it would bring a blush to the face around at the Building Employers Confederation.
The beauty of the PFI is that it brings private sector efficiency to public sector procurement in a way that almost certainly leaves the taxpayer better off. The drawback is that it in effect turns capital expenditure today into current expenditure tomorrow because instead of paying to get things built, the state pays for them to be run.
This in turn skews investment decisions because projects are selected more on the basis of profitability than need. There is no reason why the profit motive and planned long-term investment in the infrastructure cannot co-exist and produce the right result.
The problem, as the MPs point out, is that no one will know until either the Isle of Wight has been turned into a penal colony because nobody is building prisons or conversely half the country is incarcerated in shiny new cells courtesy of Michael Howard and over-zealous private contractors. With a choice between the PFI fizzling out after all the hype or storing up a public deficit problem of mind-boggling proportions for the next generation, it is easy to see which way things will go. It will not be the first time a government has mortgaged the future.
A simple idea watered down
By far the most interesting idea in yesterday's consultative document from the DTI on shareholders' rights came from the National Association of Pension Funds, which has proposed making it easier for pension funds to appoint speakers on the floor at AGMs. At present it is hard for nominee companies - run by big fund managers to hold shares on behalf of their pension fund clients - to appoint more than one representative to speak from the floor, because of difficulties with the Companies Act. Yet that nominee company may be responsible for shares owned by many different sets of pension fund trustees.
A change in the law to make it easier for the nominee company to appoint multiple representatives to speak at the AGM on behalf of the beneficial owners of the shares would give individual pension funds and their trustees much greater access to the floor of the meetings. Instead of a big fund management group making an anodyne contribution - if it says anything at all - the trustees of client funds would be able to send their own people in to speak. Initiatives like this, giving the real owners of institutional money a greater say, are a move in the right direction for shareholder democracy.
As for the rest of the document, unfortunately it shows how easily the best Whitehall minds can water down a simple idea. The Employment Select Committee wanted companies to be made to pay for shareholder resolutions at annual meetings. The DTI has come up with a yes, but... It thinks resolutions should be included with annual report mailings to save costs of up to pounds 100,000 for a big shareholder register. Not much good if your resolution has been prompted by what's in the accounts.
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