Comment: Muddled thinking in the building societies Bill

`Takeover rules are usually designed to protect the rights of investors, but Angela Knight's half-baked suggestion appears, by contrast, designed more to protect building society directors'

There is something faintly hypocritical about the Government's sudden concern for that endangered species, the building society. Belatedly and half-heartedly, the Government seems to have decided there is something worth protecting in the mutually owned building society tradition. Even as a piece of well-meant conservation, however, the building societies Bill looks a masterpiece of muddled thinking and irrelevance.

Certainly the Government's Mutuality for the next Millennium proposals might better have been presented by Virginia Bottomley than Angela Knight. As Heritage Secretary, Mrs Bottomley is at least meant to tend those threatened corners that everyone wants to keep forever England. Given the alarming rate at which societies have been abandoning mutuality and opting for conversion to quoted company status, the Heritage Secretary's time may yet come.

For the moment, though, it is Angela Knight at the Treasury who is hoping to hold back the tide by offering societies which soldier on a bit more freedom of manoeuvre and some protection from the big, bad world of competition outside. The Government wants the stalled process of mergers between building societies kick-started again in the hope that this might produce some powerful mutuals to revitalise the movement. The trouble is that any society that announces a merger is as likely as not to be picked off by predator banks offering tempting windfall profits to their members. Hence the suggestion of a one-year moratorium for merging societies, shielding them from predatory advances so they can consult their members in peace and quiet.

But just how is this meant to work in practice? Mrs Knight clearly does not know. If the Bradford & Bingley and Northern Rock, say, were to announce a merger, does this mean Barclays would not be allowed to tell members what sort of alternative deal they might get? Takeover rules are usually designed to protect the rights of investors. Mrs Knight's half-baked suggestion appears, by contrast, designed more to protect building society directors.

Retail financial services in this country have undergone dramatic change in recent years. Competition is intense, and increasing. To survive, building societies must be able to compete on the market's terms, by offering the best deals. This Government, of all, should know that. In the end, it will be market forces, not legislation, that shapes the future of this industry. That would be true even if this draft Bill makes it onto the statute books, which looks a long shot given the likely timing of the next election.

Unlocking value at Pearson

Pearson is a fine company in many respects with some wonderful assets. Like all big companies, however, it occasionally has embarrassments. Right now there could be a big one developing in its midst. It is called Mindscape. However good Pearson's general record in acquisition making might be, this one looks like turning into a real howler.

On the whole, Pearson's acquisition strategy has been well thought out. It has moved impressively to extend its television programming, notably through the acquisition of Thames Television, Grundy Worldwide, and ACI, all of which have added to profits. Publishing has been expanded through the $580m acquisition of HarperCollins's educational publishing operation, injecting better balance into its range of products for schools and universities.

However, Mindscape, a publisher of CD-Roms, cartridges and floppy discs, for which Pearson paid a handsome pounds 312m in 1994, falls into an altogether different category. This was always meant to be a long term acquisition, a bet on the future. Nonetheless it was also meant to at least break even last year. That is certainly what Pearson told the City to expect. As it is, Mindscape lost pounds 6.9m.

When Pearson carefully warned analysts as recently as December 1995 that operating profits were likely to be below City estimates, it uttered not a word about Mindscape.

The house line is that returns of unsold stock in the new year were higher than expected, and that the bottom fell out of market for floppy discs. Tight pricing in the original equipment manufacturing end of the CD-Rom market contributed to the malaise, Pearson says. There is clearly more to it than that, however. Evidence of this is in the team of external consultants who are now to comb through the operations and make recommendations for change.

Pearson went to great lengths yesterday to deny persistent reports in the press that Granada had considered mounting a bid for the company last year. But the fact of the matter is that Granada did; it was not an invention of the press. Pearson seems as determined to ignore this unpalatable truth as the persistent losses at Mindscape.

Pearson management is clearly very sensitive about the possibility of a takeover bid. And no wonder. There is much value to be unlocked in a company with such a range of attractive assets.

The Mindscape mistake only increases the company's vulnerability. Unless Pearson itself does something to unlocking value (and admittedly recent management restructuring suggests it may do) then someone else will do it instead.

Encourage the French - up to a point

Hackles rise whenever it gets out that a French company has its eyes on a British public service. The idea of Generale des Eaux taking over railway services to Brighton, among other Sussex gems (as reported on our news pages), will have seasoned commuters choking on their kippers. It is only a few years since the scandal of the season was the French move into the water industry, which culminated last year in the takeover of Northumbrian Water by Lyonnaise des Eaux.

But the reality is that the arrival of the French has had a positive impact on the water industry - witness the 15 per cent price cuts which were agreed as a condition of the Northumbrian takeover - and there is no reason why they should not be of benefit to the rail industry as well. Lyonnaise and Generale are members of a French breed that appear to have no UK equivalent - large utility companies which specialise in public works and construction projects.

British companies of similar size and capitalisation to these two giants, with the resources to invest on a comparable scale in public works projects and services just do not exist. Generale employs 215,000 people and has turnover of pounds 18bn, of which nearly a third is outside France.

Given the capital resources of the group, it is likely to be at least as good an owner of a railway franchise as the management buyout teams that predominate in the bidding. The French deserve to be encouraged - but only up to a point. There is a long way to go before French service industries are as open to outsiders as Britain's railways are now.

News
people'It can last and it's terrifying'
Sport
Radamel Falcao
footballManchester United agree loan deal for Monaco striker Falcao
Sport
Louis van Gaal, Radamel Falcao, Arturo Vidal, Mats Hummels and Javier Hernandez
footballFalcao, Hernandez, Welbeck and every deal live as it happens
Sport
footballFeaturing Bart Simpson
PROMOTED VIDEO
News
peopleA spokesperson said the support group was 'extremely disappointed'
News
i100
Life and Style
techIf those brochure kitchens look a little too perfect to be true, well, that’s probably because they are
Arts and Entertainment
Alex Kapranos of Franz Ferdinand performs live
music Pro-independence show to take place four days before vote
News
news Video - hailed as 'most original' since Benedict Cumberbatch's
Arts and Entertainment
booksNovelist takes aim at Orwell's rules for writing plain English
News
ebooksAn unforgettable anthology of contemporary reportage
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

Head of IT (Windows, Server, VMware, SAN, Fidessa, Equities)

£85000 per annum: Harrington Starr: Head of IT (Windows, Server, VMware, SAN, ...

Technical Software Consultant (Excel, VBA, SQL, JAVA, Oracle)

£40000 - £50000 per annum: Harrington Starr: You will not be expected to hav...

SQL DBA/Developer

£500 per day: Harrington Starr: SQL DBA/Developer SQL, C#, VBA, Data Warehousi...

.NET Developer

£650 per day: Harrington Starr: .NET Developer C#, Win Forms, WPF, WCF, MVVM,...

Day In a Page

Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York
Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

'I like Orwell's writing as much as the next talented mediocrity'

Will Self takes aim at Orwell's rules for writing plain English
Meet Afghanistan's middle-class paint-ballers

Meet Afghanistan's middle-class paint-ballers

Toy guns proving a popular diversion in a country flooded with the real thing
Al Pacino wows Venice

Al Pacino wows Venice

Ham among the brilliance as actor premieres two films at festival
Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

Neil Lawson Baker interview

‘I’ve gained so much from art. It’s only right to give something back’.
The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering
Fashion walks away from the celebrity runway show

Fashion walks away from the celebrity runway show

As the collections start, fashion editor Alexander Fury finds video and the internet are proving more attractive
Meet the stars of TV's Wolf Hall... and it's not the cast of the Tudor trilogy

Meet the stars of TV's Wolf Hall...

... and it's not the cast of the Tudor trilogy
Weekend at the Asylum: Europe's biggest steampunk convention heads to Lincoln

Europe's biggest steampunk convention

Jake Wallis Simons discovers how Victorian ray guns and the martial art of biscuit dunking are precisely what the 21st century needs
Don't swallow the tripe – a user's guide to weasel words

Don't swallow the tripe – a user's guide to weasel words

Lying is dangerous and unnecessary. A new book explains the strategies needed to avoid it. John Rentoul on the art of 'uncommunication'
Daddy, who was Richard Attenborough? Was the beloved thespian the last of the cross-generation stars?

Daddy, who was Richard Attenborough?

The atomisation of culture means that few of those we regard as stars are universally loved any more, says DJ Taylor