Jeremy Warner's Outlook: Gordon holds key to Liberty's future

Horlicks being made out of energy policy; Still touch and goat Premier
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The Independent Online

As a takeover rumour, Liberty International, the shopping centres property group, is one of those hardy perennials that never seems to go away.

At the right price, both GIC, one of Singapore's two sovereign wealth funds, and Westfield, with extensive interests in Australian and US shopping malls, would happily buy. The problem has always been Sir Donald Gordon, Liberty's founder. With more than 20 per cent of the stock, he's not in the past been a seller, even to the ultra-expansionary Frank Lowy, founder of Westfield and one of Australia's richest men.

Now that Sir Donald has retired from the business, has Mr Lowy, or even the Singaporeans, finally persuaded him? That's the story, but what about the price? The time to have sold was more than a year ago, when Sir John Ritblat bailed out of British Land. Back then, everyone believed that property values would rise for ever, companies were queuing to convert into Real Estate Investment Trusts, and property shares were still riding high. Today, the share price of Liberty International, whose focus on shopping centres ought to make it relatively immune to the downturn in the rest of the property sector, is down in the dumps alongside everyone else.

It seems unlikely in these circumstances that anyone would pay the 1500p a share that Sir Donald used to demand as the price of his exit. Westfield, with problems in the US, probably couldn't afford it even if it felt so inclined, while even the Singaporeans, who certainly have the money, would surely baulk.

Yet what about a merger with Westfield, or even the GIC shopping centres, to create what would be far and away the largest specialist property company of this kind in the world? That might appeal to the still engaged Sir Donald. In the past, he's always turned Mr Lowy away. Word is that he may now be open to offers.

As for the company itself, Liberty seems to be unaware of any impending deal, and is quietly getting on with its business of building and operating shopping centres. Yet it has always known that its fate lies largely in Sir Donald's hands, even though he's no longer involved in the business. Ultimately, it is he who will play kingmaker.

Horlicks being made out of energy policy

When even the Government's advisers are attacking the public policy they are meant to help formulate, you know there is something wrong. The latest example comes from Dieter Helm, an academic economist who is a member of the Government's Advisory Panel on Energy and Climate Security.

In a withering attack, he lacerates the Government for "political opportunism", muddled thinking and a deliberate conflation of issues which is doing lasting damage to the investment climate for power generation and energy distribution.

I don't want to repeat what he says – which in any case you can read in much more eloquent form than I can put it on his own website – suffice it to say that Britain faces a massive programme of investment in low carbon power generation which the private sector simply won't deliver in the absence of a stable, predictable and reasonably conducive public policy framework.

Up until quite recently, the Government seemed to be doing passably well in establishing such an agenda, with the low carbon environment it wants to create firmly grounded on three foundations – a revitalised nuclear industry, a big uplift in renewables (mainly offshore windfarms), and the pursuit of clean coal technology, including use of depleted North Sea oil and gas fields for carbon capture.

All this takes money, and lots of it. If the market is not allowed to operate as it should, which essentially means that it is allowed to generate the returns consumers will bear, then nor will it deliver on this future investment. Britain would be left dependent on increasingly insecure and highly polluting capacity, with no hope of coming anywhere close to meeting its targets on emissions.

So why has the Government started meddling to such potentially damaging consequence? The answer lies, of course, in rising energy bills, which at one and the same time is both a potential vote loser and completely trounces the Government's separate policy objective of significantly reducing "energy poverty".

The overt interference started a couple of months back when Ofgem, the nominally independent industry regulator, was told by the Treasury to conduct an investigation into whether the electricity and gas markets were as competitive as they were supposed to be. Initially, Ofgem refused. At the same time, it suggested that the Government help to alleviate the energy poverty problem by whacking a windfall profit tax on the industry, the suggested £9bn being the regulator's calculation of the free ride heavily polluting generators are getting from the the European Union's Emissions Trading Scheme.

For the time being, this operates in a perverse way, in that there is already a price for carbon which is reflected in consumer bills, but the biggest polluters don't pay it because at the outset of the scheme they were granted free permits.

Yet even assuming the regulator's calculation is correct – in fact it has no way of knowing what these generators might have paid for permits – retrospectively to slap such a tax on the industry would have a deeply discouraging effect on future investment. It would mean that whenever a rate of return was generated that the body politic deemed excessive, it would be clawed back. Nobody is going to invest knowing the gains might be expropriated.

Having said there were no grounds for investigation, Ofgem eventually caved in to public and political pressure and said it was going to investigate. To cap it all, the Government has floated the idea that it might be able to solve the energy poverty problem by introducing an industry funded vouchers system. The industry is thus obliged to become a part of the Government's social security safety net.

Energy policy is being sacrificed on the altar of political expediency. If the Government thinks it can do better than an independently regulated market in providing the cheap, clean energy that everyone obviously aspires to in an ideal world, why doesn't it go the whole hog, renationalise and run the industry itself, as it once used to little more than two decades ago? Politicians cannot both enjoy the benefits of the market and expect to abuse it at the same time. It doesn't work that way.

Still touch and goat Premier

By cutting the dividend and agreeing new covenants with his bankers, Robert Schofield, chief executive of Premier Foods, has seen off the immediate threat to his company, but it remains touch and go. Premier has been only partially successful in passing on the soaring costs of wheat and other ingredients, which means that cutting costs in the way anticipated in the wake of the Rank Hovis McDougal acquisition is going to be an even bigger ask than it was before.

The company has bought itself some time with the new covenants, yet they are still something of a stretch, requiring substantial cash generation to meet the required cover. In a tougher consumer environment, with retailers looking to recover margin from suppliers in the face of sliding sales, it's not going to be easy.

Mr Schofield says he has no regrets about the RHM acquisition, even though it has pummelled his share price and left the company mired in debt. His shareholders might think otherwise. If it does eventually turn out to have been a decent buy, we won't see the evidence of it for an awfully long time.

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