Jeremy Warner's Outlook: C&W shareholders are desperate for results - but are they so desperate to pay £216m?

Equity markets: not yet time to jump ship; Desperation as Astra pays highly for CAT; Emissions trading scheme looks a farce
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Richard Lapthorne, chairman of Cable & Wireless, wants his executives to enjoy the rewards of private equity if they succeed in the hoped-for turnaround at the beleaguered telecoms group. Investors might reasonably think the £216m jackpot worth the money in return for the £3.1bn of shareholder return over four years required by the plan.

C & W is plainly taking much more time to fix than Mr Lapthorne, even in his worse nightmares, could have anticipated when he became chairman three years ago. He's already hired and fired one chief executive in the endeavour, and ripped up the strategy at least twice.

Desperate straits call for desperate measures but even in such a problematic company, is it right to be demanding so much reward of shareholders? There's no downside whatsoever for executives in this plan; in private equity, the executive is frequently required to put some of his own money at risk. Mr Lapthorne faces an uphill struggle convincing shareholders of the merits of this scheme, never mind the unions who condemned it yesterday. If they agree, every executive and his dog will demand something similar. It's a funny old world that rewards top executives with lottery-style jackpots just for doing what the job expects of them.

Equity markets: not yet time to jump ship

Whenever equity markets wobble as seriously as they have done over the past few trading days, I think of the following, possibly apocryphal, story. A plane lands in a field and comes to a juddering halt. "Don't panic," says the stewardess to the mainly English passengers. "Sit tight, and the rescue services will be here shortly".

The small contingent of French passengers, on the other hand, decides to ignore this advice, throws open the emergency exit and dashes off into the surrounding woods. Whereupon, the aeroplane blows up and everyone else is killed.

This little vignette is possibly meant to say more about national character than anything else, yet it also serves as a powerful warning on the dangers of complacency. With stock markets, is it time to hit the panic button or should investors be sitting it out?

For the airline passengers, the choice was relatively straightforward: those who dashed for the exit would have lost nothing even if the plane had not gone up in flames. For investors, it is not so simple. If you sell now, you'll lose out should the markets rebound.

As ever at such points, fear battles with greed. It is not yet clear which will get the upper hand. The fight could prove a long and unsettling one, marked by waves of down-in-the-dumps pessimism and euphoric over optimism.

My own view, for what it is worth, remains reasonably relaxed, though I think I'd prefer to be sitting close to the exit than deep in the fuselage. Most investors cannot, like hedge funds, trade in and out of the market from one moment to the next. They must take a longer-term perspective and simply weather the ups and downs of the stock market that happen in between. Personally, I very much doubt that the turmoil of the past few days is a harbinger of a much more serious bear market to come. After four years of hectic growth, the world economy is poised to slow sharply. Yet outright recession either this year or next continues to look unlikely, notwithstanding the inflationary impact of higher oil and commodity prices.

As for the falling dollar, provided the present weakness doesn't turn into a rout, this in the long run will actually prove a boon to the US economy, making American business once more competitive and boosting jobs. The US economy needs to rebalance away from consumption to a more investment- led form of growth. After the excesses of recent years, the present slowdown might in time be seen as just what the doctor ordered, forestalling the possibility of a much more serious correction to come.

There is no such catharsis promised in Europe, where dollar weakness finds its mirror image in an increasingly strong euro. The European Central Bank hints at higher interest rates, a course of action which in present circumstances looks completely mad, snuffing out all possibility of a sustained European recovery. We can but hope that wiser counsel prevails.

Whatever. The landing may not be a particularly soft one but the chances of an outright crash, let alone the whole thing going up in smoke, still look relatively small. Where does this leave investors? To me, the present bout of nerves still feels more like 1998 than 2000. The circumstances are completely different, but many of the same fears about systemic risk as were around in 1998 abound again today. Back then, it took interest rate cuts by the Federal Reserve to reverse the stock market correction, action which arguably then encouraged the latter stages of the dot.com boom.

It may come to that again, if things start to get really out of hand. The greater likelihood is that they will settle before such action becomes necessary.

Desperation as Astra pays highly for CAT

AstraZeneca's $1.3bn acquisition of Cambridge Antibody Technology - Astra only has to pay four-fifths of that as it already owns nearly 20 per cent of the company - says more about Astra's weaknesses than CAT's attractions.

Astra is generating heaps of money right now but patents are fast expiring and there is a dearth of decent product in the pipeline to replace them. The effect is that the company is being forced expensively to buy in its pipeline. Nearly £1bn has already been spent buying in what the company's own scientists have failed to deliver. What's more, some of this product is in relatively early stage development, with a quite high risk of failure. High prices for high risk? That's what rivals say.

Does CAT fit the pattern? Astra is paying a 67 per cent premium to CAT's pre-bid share price, which not withstanding the fact that CAT operates in one of the most sought-after specialisations of pharmaceutical research - antibodies - seems astonishingly high. This is apparently in line with what Amgen paid for the US antibody specialist, Abgenix, to which CAT is arguably superior. CAT already enjoys a royalties stream from Abbott Laboratories' blockbuster arthritis treatment, Humira, and has a number of promising products under development, including a treatment for extreme asthma.

Even so, the price may reflect an element of desperation. The deal is as good as done, but Astra's chief executive, David Brennan, has some explaining to do. Even acknowledging the scarcity value of companies like CAT amid the fast depleting ranks of British biotechs, the City will take quite a bit of convincing that he hasn't overpaid.

Emissions trading scheme looks a farce

No wonder the UK Government is holding back on submitting its plans for the second phase of the European Union's emissions trading scheme. As figures yesterday from the European Commission confirm, others deliberately under-clubbed for the first phase, giving their industries more permits than they needed.

As ever when it comes to European directives, Britain was by contrast far too rigorous in its approach. This might make us seem like the pin up boy of Europe in terms of our chances of complying with Kyoto, but it has put our industries at a significant disadvantage to Continental competitors. The Government tried to revise its plan after realising its mistake, but was forbidden by the European courts. Once bitten, twice shy. This time, it doesn't intend to file its new plan until after everyone else.

The European emissions trading scheme has turned into something of a farce. By favouring incumbents with free permits to pollute, thus raising the bar for new entrants, it was never in any case clear that this was the right approach to the problem. Urgent remedial action needs to be taken.

j.warner@independent.co.uk

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