Comment: A bargain basement offer all too easy to refuse

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The Independent Online
The array of excuses trotted out yesterday for the meltdown in British Energy's share price was truly atom-splitting in its range, ingenuity and novelty. In no particular order we were told it was due to the weakness of the Dow, intra-dealing among market-makers, Sir Dennis Rooke's unhelpful comments about British Gas shareholders having been conned, misconceived attempts by retail investors to stag the issue and, of course, that old favourite, short-selling.

And don't forget that the Docklands Light Railway also broke down and the pollen count was high. We are still checking the sun spots. Many and varied are the factors which influence share prices in newly privatised stocks, or so the sponsors would have us believe. The Government and its advisers around at BZW show every intention of brazening out this latest embarrassment in much the same way as they have ignored every other setback in the rush to nuclear privatisation.

Whichever way you emerge from under this mushroom cloud of explanations, the picture does not look pretty. If the price was undermined by a wave of selling from small investors hoping for a fast buck but instead getting a swift loss, it suggests either that the Sids have learnt nothing from a decade of popular capitalism or that the Government's dream of share- holding democracy is as empty as ever.

If the answer lies in an investment strike by institutions then the implications are equally bad. This offer was made about as bargain basement as the Government dared, and still nobody could be persuaded to buy. On any realistic assessment British Energy is likely to prove a stupendous cash cow for the next 40 years and if that is not enough it is quite prepared to pay dividends out of capital.

It is just as well the Government now has nothing left to sell. It is some political achievement to short-change simultaneously both taxpayers and investors. This time there isn't even Professor Stephen Littlechild or Clare Spottiswoode to pin the blame on.

Institutions used brawn, not brains

Eurotherm's temperature controls and sensors are hardly the most exciting of products but the shenanigans in its boardroom have made compulsive viewing over the past two weeks. If Claes Hultman, the autocratic Swede who huffed out of the company after failing to oust its chairman, is reinstated it will represent a first in the colourful history of corporate bust-ups.

If there has been another instance of a chief executive demanding to be made executive chairman, being over-ruled by his company's non-executives, resigning, being wooed back by a couple of powerful institutions and returning to exactly the job he resigned, it has passed us by. It is hard to imagine a more pointless exercise and hard to believe that anyone in this silly saga has done themselves any good.

Unfortunate though most aspects of this story have been, it does throw up a number of corporate governance issues with implications far beyond the otherwise not so very important case of the succession at a middle- ranking industrial controls group. As in the recent case of Farnell's ultimately successful bid to takeover an American rival, Premier, institutions are becoming increasingly prepared to throw their weight around. It is by no means clear who benefits from their more and more public belligerence.

One of the most curious aspects of this boardroom tiff is why it happened at all. The fact that Mr Hultman should fall out with Jack Leonard, Eurotherm's chairman, comes as no surprise. Not known for his charm or reticence, Mr Hultman has done a fantastic job in turning round Eurotherm's fortunes. In the process he has put a number of noses out of joint. But why he could not have waited until Mr Leonard's planned retirement next February to flex his muscles remains a mystery.

Equally unclear is how non-executives, all of whom have first hand experience of working with strong-willed company bosses, allowed themselves to be manoeuvred into the position of effectively ousting the man who had saved the company. It is plainly preferable for a company to separate the roles of chairman and chief executive and with a chief executive as self-confident as Mr Hultman, it might be argued that it is essential. But this is not Guinness, nor is Mr Hutlman Ernest Saunders. In a small to medium sized company, combining the roles of chairman and chief executive is perfectly acceptable practice.

As for the Pru and MAM, the leading agitators, it could be fairly claimed that they have overstepped their remit. Certainly as owners of a business they have a strong interest in the composition of the board, but if they are to strong arm non-executives into reversing the decisions they are appointed to make then why bother appointing them in the first place? If institutions want to start actively interfering in the management of companies, then they should also accept the share trading limitations that go with such responsibilities. But they won't of course. Nobody emerges with any credit from this sorry little episode.

The pound is not a sterling performer

The Bank of England could scarcely conceal its glee at the success of its surprise $2bn Eurobond issue yesterday. The bond was subscribed at a premium of just five basis points above US Treasuries, putting the UK right at the top end of the top bracket in terms of the way international investors regard our credit worthiness. Only organisations like the World Bank get away with borrowing so cheaply in US dollars. Most countries pay a great deal more.

The Bank is right to describe the issue as "a triumph". Unfortunately its not quite the same story when it comes to borrowing in sterling. International investors may think the UK's credit worthiness top notch, but they still don't much like the currency in which it does the great bulk of its borrowing. When it comes to investing in bonds denominated in our own inflation prone currency - the poor old pound - they still demand top dollar. The Government is forced to borrow in sterling at a considerable premium to the price the US pays for its own, dollar-denominated borrowings. This concise measure of the Government's anti-inflation credibility or lack of it has shown a widening gap between the rates on UK and other government debt since early in 1994. It is a phenomenon that has troubled the Bank of England and goes a long way to explain its discreet opposition to Kenneth Clarke's base rate decisions. The Chancellor was none the less displaying his usual sunny disposition yesterday. He told members of the Treasury Select Committee that, as far as the economy goes, we will be able to have our cake and eat it too, along with cocktail sausages and crisps and a beer or two. Growth is picking up, government borrowing is on a downward path, and the economy is not overheating. So inflation will stay low, he insisted. What a shame the markets are so sceptical.