Jeremy Warner's Outlook: Any Sainsbury suitor would need to bid high

Brown's record; Greg Dyke/ITV
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The Independent Online

Shares in J Sainsbury, the supermarkets group, have been surging all week on renewed bid speculation. Yet I think the company has to be believed when it insists that there have been no approaches, nor would it expect any ahead of next month's strategic review.

Shares in J Sainsbury, the supermarkets group, have been surging all week on renewed bid speculation. Yet I think the company has to be believed when it insists that there have been no approaches, nor would it expect any ahead of next month's strategic review.

Sainsbury has been the focus of takeover talk ever since Philip Green withdrew his offer for Marks & Spencer. Now that M&S is off the block, hedge fund speculators need a new target to turn their attentions to. For the time being, it seems to be Sainsbury.

Like M&S, Sainsbury is a once mighty retailer fallen on hard times, but with just the sort of strong asset backing from its retail freeholds that private equity players like to prey on. Philip Green admits to having put an offer to Sainsbury before he turned his attentions to M&S. He won't have been the only one to have run his slide rule over the company.

Yet until the family - with 35-38 per cent of the shares - is ready to sell, there is little point in taking a pop. Sir Peter Davis, the former chief executive, kept the family sweet by paying a bumper dividend. Justin King, his successor, has made it clear that such largess cannot be sustained. A cornerstone of the review will therefore be that the axe is taken to the dividend and the proceeds poured into attempts to make Sainsbury price competitive with its rivals.

This will undoubtedly alienate the family, and the myriad of different charities it supports through its shareholding. But I doubt it will be enough to make them go knocking at Mr Green's door. Sainsbury remains an undervalued company struggling to come to terms with the consequences of past mismanagement. It will never return to former glories, or not in our lifetimes at least, but with the correct management prescription, it should eventually be worth a lot more than it is at the moment. Any bid would need to be at a supercharged premium to succeed.

Brown's record

During a breakfast meeting with Gordon Brown and his aides some years ago, the Chancellor told me, somewhat presumptuously I thought, that he had already addressed all Britain's big macro economic problems, which were largely solved. The Treasury's challenge for the future lay in structural reform, improving our poor productivity record and other matters concerning the micro-economy.

I couldn't help but recall these remarks while reading the Chancellor's article in the Financial Times yesterday in which he lambasts the big European economies for failing to get their act together on structural reform. Sluggish growth in Europe was putting the global economic recovery in jeopardy, he claimed.

He is of course right about the glacial pace of structural reform in Europe, but he should perhaps look to the beam in his own eye before criticising everyone else, for there are structural problems aplenty emerging in the UK economy which Mr Brown shows as little appetite for addressing as his counterparts in Europe. At the macro level, Gordon Brown's performance as Chancellor cannot be faulted. By establishing an independent Bank of England and setting rules to govern the public finances, he's put in place exactly the right policy framework for ensuring reasonable levels of low inflation growth. So far it seems to be working better than anyone dared hope.

Yet his performance at the micro-level is much more questionable. Mr Brown would point to his labour market reforms - the minimum wage, the new deal, and the system of tax credits designed to lift people out of the poverty trap - as equally powerful evidence of success. I'm not so sure.Any success these policies may have achieved in getting people back to work is offset by the enormous growth in numbers on disability benefit.

Elsewhere, there's been a bit of fiddling with competition law - technically a DTI matter, but the Treasury's tentacles seem omnipresent these days - and a new regulatory regime for the financial services industry. Whether either of these things have made Britain a better place to do business is open to debate.

But much more worrying, there has been a complete failure to grip some very obvious structural threats to the health of both the public finances and the wider economy - most obviously in the growing pensions crisis. This wasn't a crisis at all when Labour came to power in 1997. By expanding the public sector without reforming the final salary pension rights of civil servants, the Chancellor has hugely inflated the public sector's unfunded pension obligations, a cost that will have to be born by future generations of taxpayers.

Meanwhile, the private sector has been closing its occupational pension schemes down as fast as it decently can, already painfully aware that final salary pensions are an unaffordable luxury in today's low return, investment environment .

The Government's attempts to bolster private final salary pension arrangements through legislative reform is just spitting against the wind. The removal of the pension fund tax credit on dividends, at a cumulative cost to the industry so far of £50bn, has further accelerated the dash by companies to cap their pension liabilities.

At the same time, the means tested benefits system for pensioners has been greatly expanded, all but destroying the incentive to save. With the final salary safety net removed, people are in growing numbers failing to make the provision they need to for retirement, preferring instead to fall back on state benefit. It ill becomes the Chancellor to complain of a lack of structural reform in Europe when he is helping to create a whole new set of structural difficulties for Britain.

Greg Dyke/ITV

The ITV share price has been in sharp decline ever since the merger of Carlton and Granada to form a single ITV was consummated at the turn of the year. A buoyant set of half-year profits announced this week, plus confirmation that the company is lifting its target for merger cost savings from £100m to £120m, has failed to stop the rot. The overriding concern remains ITV's ever shrinking audience figures, down another 6.3 per cent to 39 per cent so far this year. Can Charles Allen, ITV's chief executive, turn the tide? Does he possess the zeitgeist and creativity necessary to deliver larger audiences?

Conventional wisdom in the City is that he doesn't, that it is only a matter of time before Sir Peter Burt, the chairman, discards him in favour of the still jobless Greg Dyke, the former director general of the BBC. I cannot for the life of me understand why this story keeps resurfacing. After what Mr Dyke wrote about Tony Blair and his allies in his memoirs, Inside Story, he stands no chance of climbing back at ITV, which though less dependent on government policy for its revenues than the BBC, is actively lobbying ministers for a reduction in the costs of its licence fee and public service broadcasting obligations. It could kiss goodbye to any concessions at all if Mr Dyke was at the negotiating table.

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