Woolworths may have said no rather speedily to the somewhat opportunistic approach made by a Baugur-led Icelandic consortium over the weekend, but how Malcolm Walker, the bidders' frontman, must have enjoyed making it. A mere 37 years ago, Mr Walker got the push from Woolies, which was (understandably) disgruntled about the amount of time he was spending building a small business on the side.
That small business became Iceland, the frozen food specialist, which Mr Walker subsequently built into a substantial concern before stepping down in 2001. And while Woolies was last week lauding Steve Johnson, its newly appointed chief executive, as a "turnaround specialist", Mr Walker's performance since returning to the helm of Iceland in 2005 has been a rather more impressive display of such skills.
Still, Woolworths' chairman, Richard North, had little choice but to say no to the consortium. Although the full details of its indicative offer have not been made public, it's clear that while the group wanted to buy Woolies' retail operation, it intended for the remaining business to be saddled with the entire company's pension scheme liabilities. In effect, the amount Woolies would have received for its 815 stores would have been smaller than its ongoing commitment to the scheme. Not a great deal.
Not that Woolies shareholders have much right to expect a significantly more generous offer for their company. This, after all, is a business described last year by one City analyst as worthless given the tiny profit generated by its substantial sales. Mr North says there is latent potential in its retail business, but Woolies executives have been on a fruitless search for this hidden treasure ever since it was spun out of Kingfisher seven years ago.
The good news for shareholders, however, is that someone out there thinks Mr North may be right. Baugur's track record in the UK retail sector is mixed, so its judgement should not be accepted without question, but the fact that it is showing an interest in the Woolies chain is welcome, particularly if alternative bidders are flushed out.
Nor are shareholders being asked to give up all interest in Woolworths. This consortium does not wish to buy Woolies' small but nonetheless interesting EUK and 2Entertain divisions, apparently because it believes they have been a distraction to management at a time when there are bigger fish to fry. That's probably true, though the two units are performing far better than the rest of the business.
The question now is whether this consortium will return to the table. The market clearly thinks so – Woolies shares rose sharply yesterday – though this may be a case of hope rather than expectation. Baugur is not renowned for being prepared to pay through the nose for its acquisitions, though some movement on the terms of this deal is possible.
And, of course, for Mr Walker, Woolies remains unfinished business.
T hank the EU for higher mobile phone charges
Mobile phone companies are the new banks. The latter are renowned for finding new ways to milk customers for more money once tried and tested methods stop working – witness the higher interest rates many banks charge on overdrafts now they are facing a crackdown on unauthorised borrowing charges. But it appears our mobile phone giants are also keen followers of the water-bed phenomenon – so-called because when you press down on charges in one area, they rise up elsewhere.
Vodafone's announcement yesterday of an increase of up to 25 per cent on minimum call charges means three of the four big mobile phone companies have raised call charges this summer, with T-Mobile and O2 having unveiled similar price hikes last month.
The increases are a direct response to the efforts of Viviane Reding, the European Union's telecoms commissioner, who seems to have made it a personal mission to attack the mobile giants' profits this year. Not content with forcing the EU's mobile phone networks to cut roaming charges on cross-border calls, Ms Reding is also planning swingeing cuts to termination fees, the prices mobile phone networks charge each other and fixed-line operators for connecting to their lines.
There are a number of similarities between the banking and mobile phone industries in this country. Both feature four dominant players, facing limited competition from smaller rivals that naturally make a lot of noise about unfair charges as one tactic in their attempts to bridge the gap. And both face the wrath of regulators who attack them for the size of their charges and the complexity of their tariffs. In fact, the latter is more worrying. There is no evidence of any price collusion in either industry – both feature pretty healthy competition – but banks and mobile phone companies are skilled practitioners in the art of blinding customers with confusing charges and fees that make it almost impossible to compare like with like.
Aside from the obvious detriment to consumers, this has an unfortunate effect. When Vodafone and its colleagues want to challenge Ms Reding and other regulators, mounting a coherent and compelling case is difficult. This is one reason why you can be sure the European Commission will make good on its threat to slash termination charges.
Interestingly, however, in the banking industry, regulators are generally much more concerned about opaque terms and conditions than the level of charges (aside from unauthorised borrowing charges, where the law on unfair terms may have been breached). This is a lesson Ms Reding might want to learn.
For one thing, it's the job of regulators to ensure competition works as smoothly as possible, which can't happen unless customers understand what they are being offered, rather than to impose the sort of charges that smooth-running markets ought to be delivering. For another, as the commissioner is now discovering to all our cost, attempts to regulate revenues and profits downwards invariably prove futile.
It's a tough job but someone has to do it
From the archives. Which bank boss warned in the summer of 2004 that the buy-to-let mortgage market was heading for "disaster"? Answer: the same chap who added that self-certification mortgages, where borrowers do not have to supply proof of the incomes they claim to earn, were "testing human honesty to its absolute limits". Step forward Richard Pym – back then chief executive of Alliance & Leicester, but yesterday appointed to the same position at struggling Bradford & Bingley.
Fast-forward four years and Mr Pym looks to have been on the money. It is these specialist areas of the mortgage market where the current downturn is being felt most acutely. Products have been pulled, the cost of those that remain has soared and, most depressingly, repossessions are rising rapidly.
B&B has had to offer a pretty attractive package to persuade the prescient Mr Pym out of retirement. And you can see why he might have been reluctant. So low has the former building society's stock (in both senses of the word) fallen that almost three-quarters of its shareholders chose not to support last week's rescue rights issue.
If things had been different, Mr Pym could not have done this job. He'd been lined up by JC Flowers to head Northern Rock, had its private equity bid for the now nationalised mortgage bank won the day.
Still, the challenge at B&B is no less arduous – and Mr Pym doesn't have the luxury of state backing. Northern Rock might even have proved an easier ride.Reuse content