David Prosser's Outlook: Olivant is favourite in the race for Rock

Emap 'failure' is not what it seems; Supermarket PR has a lotta bottle; Sports Direct stuck in its own half
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The Independent Online

Over to you, Northern Rock. Having named Virgin Money preferred bidder for the bank and agreed to meet up to 5m of its costs should it change its mind, Northern Rock's advisers were yesterday confronted with an offer from Luqman Arnold's Olivant that almost a quarter of its shareholders are already supporting in principle.

Quite rightly, Northern Rock will take its time considering Olivant's pitch. On the face of it, however, Mr Arnold seems to have bettered the deal on the table from Sir Richard Branson's Virgin. Not only is he offering existing investors the opportunity to preserve more of their shareholding, he also thinks he can pay back the Bank of England borrowing more quickly. And as with Virgin, the unions and Northern Rock's charitable trust are not kicking up a fuss.

Still, there are some issues to consider. One is the price Olivant is proposing to buy in at. Virgin is effectively offering 900m for 55 per cent of the company, while Olivant wants to buy 15 per cent of the company for 150m. You do the maths, though it's worth noting that some of Sir Richard's offer is accounted for by his 250m valuation of Virgin Money, which many think overblown.

Then there's the future strategy planned for Northern Rock. Mr Arnold wants to retain the bank's current name, while Sir Richard would rebrand the whole operation as Virgin Money. Which is more credible? Virgin may not have much of a track record in the branch-based banking business, but it has not been associated with the first run on a bank in living memory.

For now, however, these look like relatively minor points. The higher valuation from Virgin has not unduly concerned shareholders backing Olivant. And while the branding issue has some resonance, renaming Windscale as Sellafield hardly persuaded people overnight that the nuclear power plant was a nice place for a picnic.

And then there's the issue of timing, crucial given the Treasury's determination to have this sewn up as soon as is humanly possible. Both sides face two of the same obstacles securing the funding for their bids, no mean task, and getting rights issues away. Virgin, however, has a further problem. Its bid is a takeover offer, which must be put to shareholders, a time-consuming process. Olivant is not burdened by the same constraints.

Sir Richard, naturally, has the option of an improved bid should Northern Rock decide to change horse (maybe the Treasury will even get the auction it wanted). This is not done and dusted. But the odds on Virgin certainly lengthened yesterday.

Emap 'failure' is not what it seems

Two out of three then for Alun Cathcart, the Emap chairman, who has been conducting a strategic review of the media group for much of this year, with a view to breaking it up and selling its constituent businesses off. Both consumer businesses, radio and print, have been sold, but the business-to-business unit hasn't.

Is it fair to characterise that outcome as a failure? The market certainly wasn't impressed, with Emap shares coming in as the worst performer in the FTSE 250 yesterday. And it seems odd that, having achieved what is universally acknowledged as a full price for the consumer businesses, Mr Cathcart hasn't been able to get an offer with which he is happy for the b2b operation, widely seen as Emap's most valuable strand.

Emap's defence would be that it never promised a complete break-up the idea was always to sell off businesses getting a decent offer and to keep those that didn't.

So why weren't more valuable b2b offers forthcoming? For that, blame the credit crunch which has made it ever more difficult for private-equity bidders and others to raise offer money at economic rates.

Indeed, Mr Cathcart should take a bow for extracting such a handsome price from Bauer, a privately owned company that is able to take a much longer-term view about rates of return than businesses accountable to investors on a month-by-month basis. And he should also win plaudits for not being coerced into selling Emap's trade publishing units for less than the 1.3bn he believes it is worth.

Supermarket PR has a lotta bottle

The attempt by Britain's biggest supermarkets yesterday to paint themselves as modern-day Robin Hoods was an impressive exercise in public relations. Sainsbury's and Asda, which put their hands up to price-fixing in the milk market, spoke with one voice. To paraphrase: "It's a fair cop, guv, but we were only trying to help the needy."

Explaining its decision to collude in order to artificially boost the price of milk a deception that an Office of Fair Trading investigation found had cost consumers 270m the retail trade said it had simply wanted to help dairy farmers earn a little bit more for their produce.

Those farmers certainly needed the help. With milk prices close to all-time lows in real terms and costs rising, many were close to going to the wall. The supermarkets apparently felt compelled to act partly for altruistic reasons, but also to preserve their supply lines.

Unfortunately for the guilty parties, the evidence is that in their supposed efforts to promote a wealth redistribution exercise they were the biggest beneficiaries. While the National Farmers' Union wasn't commenting on the affair yesterday, it has already said that its members didn't profit from the price fixing in any significant way.

The OFT does not have it in its powers to turn a blind eye to collusion in cases where the guilty parties are simply trying to help out third parties. But in any case, the watchdog made it very clear yesterday it wasn't buying the supermarkets' explanation for their misdeeds.

A quick check on the figures explains why. The Milk Development Council's records show that in 2002, the first year covered by the OFT probe, the average price of a litre of milk at the farm gate fell from 18.47p a year earlier to 15.31p. Meanwhile, the price charged by retailers rose from 42.7p to 44.3p.

The following year, also covered by the investigation, did provide some relief for farmers their milk sold for an average of 16.51p. Retailers benefited more significantly, however, with the price charged by shops increasing to an average of 46.6p.

In other words, if retailers were attempting to help out beleaguered dairy farmers, they were also keen on sharing the spoils. Indeed, it appears they took the lion's share of the gains. Robin Hood would not approve.

Sports Direct stuck in its own half

Mike Ashley's beloved Newcastle United may have turned the corner, but the same certainly can't be said of his retail firm Sports Direct. Its shares fell further yesterday, in a rising market, on yet more corporate governance concerns.

Mr Ashley's way of doing business has now fallen foul of Peter Montagnon, the influential director of investment affairs at the Association of British Insurers, who says the company's approach to governance issues is directly linked to its plummeting share price. Sports Direct is now close to being worth just a third of its value when it floated 10 months ago.

In addition, Pirc, the corporate governance adviser to institutional investors, is urging clients to vote no when Sports Direct asks for the right to buy back more shares at an EGM later this month. It is concerned the buy-back will take Mr Ashley's stake in the company to 72 per cent, from 57 per cent at the float.

Ever since Sports Direct shares began falling, there has been speculation Mr Ashley would take his ball home, by offering to buy back the company at a much lower price than he sold it for. He appears to be doing exactly that, share by share.

d.prosser@independent.co.uk

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