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.

Sport
Club legend Paul Scholes is scared United could disappear into 'the wilderness'
football
News
A model of a Neanderthal man on display at the National Museum of Prehistory in Dordogne, France
science
News
Dawkins: 'There’s a very interesting reason why a prince could not turn into a frog – it's statistically too improbable'
newsThat's Richard Dawkins on babies with Down Syndrome
Sport
Malky Mackay salutes the Cardiff fans after the 3-1 defeat at Liverpool on Sunday
footballFormer Cardiff boss accused of sending homophobic, racist and messages
PROMOTED VIDEO
Sport
Rodgers showered praise on Balotelli last week, which led to speculation he could sign the AC Milan front man
transfers
Life and Style
life – it's not, says Rachel McKinnon
Arts and Entertainment
Eye of the beholder? 'Concrete lasagne' Preston bus station
architectureWhich monstrosities should be nominated for the Dead Prize?
Arts and Entertainment
Arctic Monkeys headline this year's Reading and Leeds festivals, but there's a whole host of other bands to check out too
music(who aren't Arctic Monkeys)
News
Lizards, such as Iguanas (pictured), have a unique pattern of tissue growth
science
Extras
indybest
News
Anna Nicole Smith died of an accidental overdose in 2007
people
Life and Style
food + drink
Arts and Entertainment
'The Great British Bake Off' showcases food at its most sumptuous
tvReview: Bread-making skills of the Bake Off hopefuls put to the test
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
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

Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Test Lead (C#, Java, HTML, SQL) Kingston Finance

£40000 - £55000 per annum: Harrington Starr: A Global Financial Service Organi...

Access/Teradata Developer, Banking, Bristol £400pd

£375 - £400 per day: Orgtel: Access / Teradata Developer - Banking - Bristol -...

Quantitative Analyst (Financial Services, Graduate, SQL, VBA)

£45000 per annum: Harrington Starr: Quantitative Analyst (Financial Services, ...

Day In a Page

Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

We know all too much about the cruelty of Isis – but all too little about who they are

Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
Neanderthals lived alongside humans for centuries, latest study shows

Final resting place of our Neanderthal neighbours revealed

Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
Scottish independence: The new Scots who hold fate of the UK in their hands

The new Scots who hold fate of the UK in their hands

Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

Blight club: Britain's ugliest buildings

Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape
eBay's enduring appeal: Online auction site is still the UK's most popular e-commerce retailer

eBay's enduring appeal

The online auction site is still the UK's most popular e-commerce site
Culture Minister Ed Vaizey: ‘lack of ethnic minority and black faces on TV is weird’

'Lack of ethnic minority and black faces on TV is weird'

Culture Minister Ed Vaizey calls for immediate action to address the problem
Artist Olafur Eliasson's latest large-scale works are inspired by the paintings of JMW Turner

Magic circles: Artist Olafur Eliasson

Eliasson's works will go alongside a new exhibition of JMW Turner at Tate Britain. He tells Jay Merrick why the paintings of his hero are ripe for reinvention
Josephine Dickinson: 'A cochlear implant helped me to discover a new world of sound'

Josephine Dickinson: 'How I discovered a new world of sound'

After going deaf as a child, musician and poet Josephine Dickinson made do with a hearing aid for five decades. Then she had a cochlear implant - and everything changed
Greggs Google fail: Was the bakery's response to its logo mishap a stroke of marketing genius?

Greggs gives lesson in crisis management

After a mishap with their logo, high street staple Greggs went viral this week. But, as Simon Usborne discovers, their social media response was anything but half baked
Matthew McConaughey has been singing the praises of bumbags (shame he doesn't know how to wear one)

Matthew McConaughey sings the praises of bumbags

Shame he doesn't know how to wear one. Harriet Walker explains the dos and don'ts of fanny packs
7 best quadcopters and drones

Flying fun: 7 best quadcopters and drones

From state of the art devices with stabilised cameras to mini gadgets that can soar around the home, we take some flying objects for a spin
Joey Barton: ‘I’ve been guilty of getting a bit irate’

Joey Barton: ‘I’ve been guilty of getting a bit irate’

The midfielder returned to the Premier League after two years last weekend. The controversial character had much to discuss after his first game back
Andy Murray: I quit while I’m ahead too often

Andy Murray: I quit while I’m ahead too often

British No 1 knows his consistency as well as his fitness needs working on as he prepares for the US Open after a ‘very, very up and down’ year
Ferguson: In the heartlands of America, a descent into madness

A descent into madness in America's heartlands

David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

BBC faces corruption allegation over its Sir Cliff police raid coverage

Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home