Demergers are meant to create value for shareholders, not reduce it, so the negative reaction of the GUS share price to news of the company's final breakup into the Experian credit rating and Argos retailing businesses must have been a faintly disappointing one for the GUS chairman, Sir Victor Blank.
Demergers are meant to create value for shareholders, not destroy it, so the negative reaction of the GUS share price to news of the company's final break-up into the Experian credit rating and Argos retailing businesses must have been a faintly disappointing one for the GUS chairman, Sir Victor Blank.
Yet I doubt he'll be losing any sleep over it, for the response was only proof of the old stock market adage that it is better to travel hopefully than to arrive. The GUS share price has enjoyed a spectacular run in anticipation of these demerger proposals. Yesterday's 3.25 per cent fall reflects only the news that Experian will be raising fresh equity on demerger to reflect the fact that it will be inheriting the bulk of the group's debt.
There is still some possibility of a private equity bid for Experian before the demerger gets off the starting blocks, but it would have to be an extraordinarily high one to tempt Sir Victor. Experian is a terrific business with exceptional growth potential. If private equity wants to buy into that story, it must await the flotation, when the company will find its own market value. Protracted negotiations with a private equity acquirer in the meantime will only slow the demerger process for no certain outcome.
GUS has also sensibly opted for a London listing, rather than New York, where arguably Experian could have commanded a higher valuation. The regulatory costs of listing in America were judged too high, and in any case there would have been a major flowback problem from investors unable to hold US listed stocks.
Curiously, nothing remains of the original Great Universal Stores. The original agency mail order company was sold to the Barclay brothers a few years back. With this final break-up, the name will go too, completing a life cycle which stretches almost precisely 100 years. Six months from now, GUS will be just another footnote in the corporate history books. Unlike so many once great corporate names, at least this one bows out on a high note.
Emissions trading: unwise to complain
All politics tends to be a compromise, but none more so than the debate over climate change. Thus it was that the Environment Secretary, Margaret Beckett, found herself under attack on all sides yesterday over the Government's new Climate Change Review Programme. Nothing is ever good enough for the Greens, so their response was predictable enough. Yet the industrial reaction was equally hostile.
The electricity generating industry bore the brunt of CO2 reductions in Phase 1 of the EU Emissions Trading Scheme, thundered the Association of Electricity Producers. Now the Government expects it to bear the entire burden of reductions for Phase 2. Can this be right?
It is no wonder that Mrs Beckett finds herself in such a muddle, for whether or not the proposals go far enough, they are being pursued in a particularly unhelpful way for electricity suppliers.
The Phase 2 carbon reduction plans envisage a cut of between 3 and 8 million tonnes per annum between 2008 and 2012, when the Kyoto Protocol comes to an end. This extraordinarily wide range is largely down to a difference of opinion between the Department of Trade and Industry and the Department for Environment, Food and Rural Affairs over how much might be needed to meet Britain's obligations under the trading scheme. Defra tends to bat for the green lobby, but the DTI worries about the effect of too onerous a regime on competitiveness.
Whatever the rights and wrongs of this debate, the upshot is a set of proposals which for planning purposes is completely useless to the electricity supply industry. Electricity companies haven't a clue, on the basis of what was published yesterday, what sort of a regime they will be operating under. The reason this is important is because the lead times for investment in electricity generation tend to be exceptionally long ones typically three years to get the plant built for a life expectancy of more than 20 years.
Uncertainty about what sort of carbon constraints might exist makes already difficult business decisions virtually impossible. Meanwhile, older, dirtier plants are being closed, raising the very real possibility of insufficient investment to answer the country's energy needs.
Still, it would perhaps be unwise for the industry to complain too loudly. Emission trading is the electricity supply industry's preferred solution to the CO2 problem. For generating companies, the alternatives look much worse. The most obvious of these would involve taxing demand to the point where it is forcible reduced.
At least with emissions trading, suppliers stand some chance of handing the costs of carbon controls on to the consumer. Measures that would directly discourage use of electricity would for them be much more damaging.
As it is, emissions trading favours the incumbent, which at the outset gets an allocation to pollute. New entrants, by contrast, must expensively acquire allowances just to get started. This, it has long seemed to me, is the best argument against the emissions trading approach.
The industry complains that as non voters they take the brunt, while the voters home and car owners escape lightly. But would these companies really want a tax system which reduces consumption by forcing greater energy efficiency on the home and the car? Once emissions trading is shown to have failed as I am certain it will straight carbon taxes may be something they'll have to get used to.
Roaming: let the market decide
Enough is enough. Since the market doesn't appear inclined of its own accord to reduce the costs of using a mobile phone abroad, the EU information society and media commissioner, Viviane Reding, intends to do it instead by regulating the industry into submission. She's got a point. With the advent of "roaming" on mobile phones, the cost of calling home from abroad may have improved a bit on the iniquitous charges that tended to be levied by hotels, but it is still outrageously high.
According to the European Commission, it can be anything up to ten times as much as a national, cross network call. There are plainly some extra costs involved in international roaming, but whatever they are, they cannot possibly justify such a differential. Repeated warnings from Ms Reding have failed to have the desired effect. Some roaming charges have actually risen since she put the industry on notice.
Whether it is desirable to impose the regulation as proposed is a different issue. International roaming accounts for between 8 and 15 per cent of operators' total revenues, and is by definition exceptionally high margin. Practically, however, it may be quite difficult to do anything about it.
The commissioner says her new regulation would eliminate unjustified roaming charges by making the cost of calls made from abroad the same as those made in the user's country of origin. But which national charge does she mean? There's quite a range. It is also inevitable that if by any chance she does find a practical way of depriving mobile operators of this lucrative source of revenue, they will merely seek to recover it from other charges.
One of the reasons the market hasn't yet provided a solution to the problem is that some operators benefit more than others from excessive roaming charges. These net recipients have an obvious interest in defending the present structure of "Inter Operator Tariffs", or wholesale charges.
Yet ultimately, it must be even in their interests to bring the charges down if it results in people using the phone more. T-Mobile and Vodafone are already engaged in a series of price cutting initiatives aimed at generating precisely this effect. In the end, this is likely to provide a better solution than ham fisted regulation, however frustrating it must be to Ms Reding that it hasn't produced the required effect more swiftly.Reuse content