COMMENT : The new broom at C&W makes a clean sweep

`Persuading four different moving parts to agree such a complex transaction is in itself no mean feat. But getting them to do it in just six weeks is a remarkable act of negotiating skill'
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What a difference a new broom can make. In just three short months, the new man at Cable & Wireless, Dick Brown, seems to have confounded the company's critics, at last providing the strategy and direction that C&W has lacked for so long. Both from a financial and an industrial perspective, yesterday's four-way merger between Mercury, Bell Cablemedia, Nynex and Videotron is hard to fault. Mr Brown seems at a stroke to have found a method of putting a decent value on the company's huge and so far largely unrecognised investment in Mercury, and to have insured the company's long-term viability by providing it with a reasonably sized local loop to hitch on to.

Persuading four different moving parts to agree such a complex transaction is in itself no mean feat. But getting them to do it in just six weeks is a remarkable act of negotiating skill, achieved in part by keeping the corporate lawyers as far away from it as possible. The paralysis of action that seems to have gripped C&W these past few years has plainly lifted.

Mr Brown is obviously the main reason for this, but to be fair on his predecessors, he has also had the luck of timing on his side. Mr Brown arrived at C&W just as the cable industry was beginning finally to come to its senses and realise that something had to be done about its fragmented structure, lack-lustre image and poor marketing skills. The cable companies have built themselves a wonderful infrastructure, but they have been poor at doing anything with it. Mr Brown found himself pushing at an open door. Consolidation was in the air and at last there was a chance to solve Mercury's congenital weakness, its lack of a decent local network.

Normally, deals as commercially and industrially sound as this one suffer from a fatal flaw, that they are also anti-competitive and therefore against the public interest. In this case it seems to be the very reverse. At last there is the prospect of proper competition for BT, an opportunity to create a powerful national brand in local and long distance telecoms to rival the all-powerful incumbent.

BT versus Mercury has until now always looked a bit like Mike Tyson versus gran. Now at least we'll have a competitor capable of going a few rounds. In cable television too, a much more credible player is created, one capable of standing up to the might of BSkyB as well as possibly offering some worthwhile alternative programming of its own. A great deal of work needs to be done in integrating these four companies and improving their lamentably poor penetration rates, but at least the building blocks are now in place to do something serious with.

As for the financial side of this deal, that seems to work for C&W, too. C&W ends up with nearly 53 per cent of a business which, judged by the valuations used in putting it together, should be worth something over pounds 5bn when its shares start trading on the stock market. As things stand, only a small proportion of that value is recognised in C&W's share price. The deal involves a cash payment to Bell Cable Industries of $338m, but that is virtually covered by what C&W is getting by reducing its interest in Germany. Now, there's got to be something wrong with this deal somewhere....

Airbus offers BAe manna from heaven

British Aerospace is one of those companies where something always seems to turn up just when it's needed. The last such windfall was its stake in Orange, which cost it little but turned out to be worth a packet. Before that was Rover, bought for a song and sold for a fortune. So where is the next manna from heaven going to come from? Quite possibly Airbus, which against all the odds is turning out to be an outstandingly successful example of pan-European industrial co-operation.

According to a circular from Lehman Brothers yesterday, Airbus could be worth as much as $18bn if it were floated on the stock market, valuing BAe's 20 per cent stake in what is admittedly for the moment only a consortium, at $3.6bn. This is not a valuation achieved out of nothing, of course, but as luck would have it, BAe's present shareholders haven't had to stump up much for this little treasure - it has mainly been funded out of government launch aid, British and Continental.

Nor is a stock market flotation the fantasy it might appear. Airbus is in the process of incorporating and while this is still a long way from a public listing, that is certainly the eventual aim. Airbus has every intention of tapping the capital markets for the planned development of the A3XX, its own version of the super jumbo. The main difficulty lies not so much in persuading BAe's continental partners that floating Airbus is a good idea as in establishing precisely what stake each partner is entitled to. BAe's interests are more profitable, but continental parts are indisputably bigger.

Thanks for nothing, Sir George

Those investors merrily piling into the newly privatised rail sector have more to thank Sir George Young for than they could have known. Not only were the franchises knocked out at bargain basement prices but, it now emerges, the taxpayer will not be entitled to recoup a single penny in the event that they make "super profits", whatever those are.

It might not have been like that. In his wisdom, the franchising director, Roger Salmon, advised the Secretary of State to include claw-back clauses in the sale of the train operating companies, clauses that might have allowed taxpayers to share in any windfall profits. The flip side of the coin was that unexpected revenue shortfalls would also be borne equally. Sir George, who is more used to bicycles than trains, ignored this advice on the grounds that it would deter companies from tendering for franchises or encourage them to bid for higher subsidies.

He was also concerned that if the franchises turned out not to be worth anything, the taxpayer would have lost out twice over - by paying heavier subsidies and still not getting a share of the action. Hindsight is a wonderful thing but even without its benefit the investment community seems to have taken a much more bullish view of the prospects for the private rail companies than Sir George and his civil servants.

Stagecoach and Prism, two of the successful bidders for the first three franchises let by the Government, have both seen their share prices rocket since the deals were done. In the case of Prism, a collection of four bus companies, the share price has risen four-fold in as many months as investors lick their lips in anticipation.

This may be an investment bubble waiting to burst, in which case there will be plenty of investors getting a soaking. If it is not, then Sir George will have some tricky questions to answer from the Public Accounts Committee, since Mr Salmon's proposal would have neatly protected taxpayers' interests on the upside and investors' interests on the downside.

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