Jeremy Warner's Outlook: Arcelor's poison pill defence only makes the board look ridiculous. When will they learn?

Branson in blinder of a deal with NTL; Where do airlines sit on Ferrovial's bid?; Severn Trent in £1bn Biffa demerger
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The Independent Online

When it looks like a poison pill, walks like a poison pill, smells and feels like a poison pill, it generally is a poison pill. Yet farcically, Arcelor attempts to present its little manoeuvre as something else in revealing details of a scheme which appears deliberately intended to frustrate Mittal Steel's $25bn takeover bid. No, no, no, says the Luxembourg-based steel maker's finance director, Gonzalo Urquijo. "We do not take poison pills. This is not a poison pill."

However it is described, it was by far the most entertaining element of an otherwise dull and conventional bid defence, made all the more comical by management's attempts to deny its true meaning. Up goes the dividend again, and there is also the usual promise of a big capital return on top - $5bn in this case. All standard fare for any bid defence these days. What is not so common, at least on these shores, is to put in place a legal structure that makes it impossible to sell one of the company's key assets.

This is the recently acquired Canadian steel maker, Dofasco. Arcelor's board has judged Dofasco to be so valuable in terms of the technology it offers to the rest of the group that it cannot be sold on to anyone else. To prevent this from happening, rights to the technology are being vested in a Dutch foundation which will have independent control over any decision to sell.

The reason this is important is that Mittal Steel is committed to sell Dofasco to Germany's ThyssenKrupp to help defray the costs of the bid. Mittal may also have to sell the asset in any case to answer antitrust concerns in North America.

The charitable way of looking at this manoeuvre is that it is just a way of attempting to bring Mittal to the negotiating table so that a higher bid can be made and recommended. Arcelor seemed to hint at this interpretation yesterday by stating that the new foundation's position on selling Dofasco's technology would be very different in the event of a recommended offer from Mittal.

Yet I doubt that in practice this is what Arcelor is playing at. Nothing management has done so far indicates anything other than a no-holds barred, to the death fight to see off Mittal - whatever it takes, fair means or foul. Arcelor has cited poor corporate governance arrangements at Mittal as a key reason for rejecting the shares and cash bid. Since when did acting against the interests of shareholders count as a model of good corporate governance that others might apply? The pot is calling the kettle black. If it wasn't so reprehensible, it would be almost comic.

For Arcelor there is a severe risk of its cunning plan backfiring. Any remaining goodwill has just been used up. One look at this confirms the board as completely untrustworthy from the shareholders' point of view. Nor even does it look as if Mittal has been successfully deterred. Lakshmi Mittal, the chairman, insists he'll plough on regardless; poison and all, he's still prepared to swallow the pill.

Branson in blinder of a deal with NTL

What is all this nonsense about quadruple plays, churn reduction and taking on BSkyB? The only clear winner from NTL's takeover of Virgin Mobile is Sir Richard Branson, who ends up with 10 per cent of something much bigger and a whacking great royalty fee for use of the Virgin brand.

Yet as a deal, there's a touch of the Time Warners buying AOL about it. Masterful entrepreneurial achievement though Virgin Mobile might be, it is a company without assets which merely piggybacks on someone else's network. All NTL is buying is a high churn customer base, a billing system and a brand. To pay just shy of £1bn for such a vacuous endeavour seems more than a little careless.

The deal is justified by the supposed opportunity it gives to bundle the two companies' services into a single retail proposition - pay-TV, telephone, mobile and broadband all in one package. But the disadvantages of buying in this way seem just as great as the advantages, not least the difficulty of switching providers for one of the services without disrupting all the others. The "quad play" promises to be attractive only if priced at a level which makes one or more of these services a giveaway.

Cable has a long and distinguished history of value destruction. I'd like to think I'll be proved wrong this time, but with NTL already busy digesting Telewest, the chances of success with Virgin Mobile seem remote.

Where do airlines sit on Ferrovial's bid?

BAA has always had a somewhat uneasy relationship with its customers, the airlines. As Grupo Ferrovial's bid for the airports authority taxies towards the runway, it seems that BAA cannot rely on any of these customers for support in attempting to fight off the Spanish interlopers.

Hostility is greatest at Stansted, where Ryanair's Michael O'Leary has with characteristic charm accused BAA of being "a bunch of rapists". The language may be more restrained, but the situation is scarcely any better at Heathrow, where BAA is accused of failing adequately to make the case for a third runway.

In fighting any bid, BAA intends to focus on shareholder value, yet there is just a hint the company might attempt to cloak itself in the union flag too. Few airlines would be prepared to back such a stance. Some say privately that they would welcome a Ferrovial takeover.

To see why, just follow the money. With already more than 60 per cent of landing rights at Stansted, Ryanair has little incentive to support and pay for the planned expansion of capacity through the construction of a second runway, with related infrastructure. If he is forced to pay higher charges, Mr O'Leary is threatening to up sticks and go to Luton, where expansion plans are more in keeping with his own low-cost approach.

As for Heathrow, here there is an appetite for expansion from incumbent airlines, and possibly a willingness to pay for it too. Yet the Government's preferred solution is a second runway at Stansted, ostensibly for environmental reasons. Never mind that there are lots of marginal constituencies around Heathrow. Stansted, by contrast, is in the middle of Tory country. BAA's acquiescence to the Stansted solution has not gone down well with the third runway at Heathrow lobby.

As things stand, the regulations don't allow BAA to cross subsidise the cost of a second runway at Stansted from landing charges at Heathrow. Yet the airlines remain suspicious, notwithstanding heavy investment in terminal capacity at Heathrow, and frequently argue they would be better off with a break-up. At Stansted, the low-cost operators take the same view.

All these views, which are riddled with self interest, may be irrelevant if the Government and Civil Aviation Authority decide that regardless there is indeed a public interest to defend at BAA. Both are on record as expressing concern over aggressive levels of debt leverage, which they fear might damage BAA's ability to finance its obligations. The view of customers too might quickly reverse if high leverage meant less investment or higher landing charges to finance it.

Severn Trent in £1bn Biffa demerger

Ah, the follies of diversification. Biffa was one of those businesses bought by Severn Trent to expand its horizons beyond the dull, old regulated utility of water and sewage. While directors were busy with their new toy, they so neglected the core business that junior managers were allowed to defraud the regulator, resulting in big fines and lost reputations.

Now Colin Matthews, new from breaking up Hays, is to demerge the waste disposal company, having discovered that the synergies between Biffa and the core utility are so negligible as to be scarcely worth having. The shares surged on the welcome sight of a company that decides to return to its knitting.

j.warner@independent.co.uk

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