COMMENT: Final orders for a shabby compromise

"Sir Richard faces the classic bidder's dilemma. He wants Wellcome shar eholders to know what a full price he is paying for their company, but he needs to reassure his own investors that the scope for cost-cutting makes the deal a bargain for Glax o."

The beerage has been proving the adage that partial solutions create more problems than they solve ever since that disastrous hybrid - the Government's beer orders - came into force at the beginning of the decade. The cause of competition has bee n advanced, some claim considerably, but progress has been slow and brewers continue to enjoy largely charmed lives.

Meanwhile the market place has become riddled with distortions and anomalies sufficient to fill a hall of mirrors. Many of these are of the Government's making. Its half baked approach to the brewing monopoly has done almost as much harm as good. Goaded into action by the European Commission, the Office of Fair Trading now plans to address one of them. This is the issue of the price charged by brewers to their tied estates. In some cases it has become as much as 40 per cent more than that charged to thefree trade.

Some brewers have been raising rents to what landlords regard as draconian levels. Nor is this a problem confined to Inntrepreneur, the Grand Met/Courage estate. When the Commission began investigating it found the complaint common to the industry.

Go back a little in time and landlords used to pay what was called a "wet rent". What that meant was that the brewers charged a relatively high wholesale price for their beer but in many cases kept rents artificially low. As brewers adapted to the modernworld, they began acting as property companies as well as brewers. Rents were raised and beer prices have been left either unchanged or increased. Meanwhile, cut throat competition from the free trade has created wide price differentials. It is hardly surprising that tied landlords feel aggrieved.

Whether the OFT can do anything about it is another matter. What remains of the tie has survived thanks only to the shabby compromise agreed by the Government in the early 1990s. If this investigation hastens its ultimate demise, many would regard that as a thoroughly good thing. Certainly the Commission would think so. Britain is alone in Europe in having any form of tie. To abolish it entirely, however, would create a severe problem for small regional brewers, some of which survive thanks to the tie alone.

Zantac running out of juice Glaxo's interim figures make the message plain - the company needs to buy Wellcome and would be prepared to pay a deal more than its current offer.

The reported figures confirm that Zantac, the ulcer drug which represents 40 per cent of group sales, is running out of steam fast. The growth treatments are doing well but as long as Glaxo remains so dependent on one income stream, its future looks bleak.

To his credit, Sir Richard Sykes, Glaxo's chief executive, has never tried to hide the fact. Many of the right things are already being done to correct or combat the problem, but there is a limit to the extent to which costs can be pared down internally.Buying Wellcome gives him another bite at the cherry as well as providing huge areas of overlap and duplication to strip out.

Sir Richard faces the classic bidder's dilemma. He wants Wellcome shareholders to know what a full price he is paying for their company, but he needs to reassure his own investors that the scope for cost-cutting makes the deal a bargain for Glaxo.

In order to keep both camps happy at this early stage of the bid, he remains coy on the extent to which the cost-base can be slimmed, but there is a quiet confidence in the Glaxo camp that the potential is mouth-watering. Given this background the enthusiasm of the Wellcome Trust to bite Glaxo's hand off in its hurry to accept the offer remains a mystery. It rarely makes sense in a bid situation to make an early decision one way or the other. Flemings, which advises the Trust, is as aware of that as any. Its advice that the Trust accepts without giving Wellcome a fair chance to come up with a white knight remains one of the unexplained curiosities of this takeover.

Boldly flying planet Sterling A US/Soviet link-up in space looks like a doddle compared with the task now facing Ken and Eddie. They are trying to achieve a safe re-entry for the UK economy after a year in which it has been travelling at an unsustainablespeed. The Russian and American astronauts are at least flying by wire, using measurements calculated by Mission Control.

The Chancellor and Governor by their own admission are flying the economy by the seat of their pants, attempting to steer it through a looming patch of inflationary turbulence without there being anyone reassuring on the ground to talk them down. The instruments meanwhile are throwing up some distinctly ambiguous data.

Yesterday's figures are a case in point. They seem to be sending conflicting signals to the Treasury and Bank. Industrial production recovered sharply in December, but much of the acceleration was due to increased output of energy as a mild November gaveway to a cool, wet December.

For the fourth quarter the industrial and manufacturing sectors of the economy grew faster than the analysts had expected, but slower than in the year as a whole. For the Treasury spokesman it was a welcome slowdown to a more sustainable rate of future growth. The City chose to see it from the same perspective.

But for some analysts it was evidence of something potentially more important - the first hint of a distinct slow-down due to the tightening of policy.

Rising taxes, rising interest rates and a sense that the authorities are determined to fire the retro-rockets far earlier than they did the last time the economy went into orbit may already be having an impact in dampening down economic activity.

Nobody will know for certain whether - and how fast - the economy is slowing down until the early summer. The Chancellor and Governor's problem is that they must decide before then whether to let the economy glide or fire another interest rate retro-rocket instead.

As in space, the risks are high and the margin for error very narrow.

Start your day with The Independent, sign up for daily news emails
News
peoplePair enliven the Emirates bore-draw
Arts and Entertainment
tvPoldark episode 8, review
News
Britain's opposition Labour Party leader Ed Miliband (R) and Boris Johnson, mayor of London, talk on the Andrew Marr show in London April 26
General electionAndrew Marr forced to intervene as Boris and Miliband clash on TV
News
news
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence