Jeremy Warner's Outlook: Hargreaves is attempting to buy Matalan on the cheap. His tactics are well out of order

Hargreaves has never been entirely happy with life as a publicly quoted company. Yet he's been happy to use the markets to sell down his stake
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The Independent Online

John Hargreaves, founder of Matalan, is behaving outrageously in threatening to vote his family shareholding against the board's dividend policy. His buyout bid, when it comes, is unlikely to be a generous one. Yet he seems to be saying that unless other shareholders accept it, he'll ensure that the dividend, which he claims is out of kilter with other retailers, is cut. This is gun to the head stuff of a type which is totally unacceptable in a publicly quoted company.

Mr Hargreaves has never been entirely happy with life as a publicly quoted company. Yet he's been perfectly happy to avail himself of the benefits of the capital markets by selling down his shareholding. A succession of chief executives have come and gone and in recent years the company has limped from one profits warning to another.

Now Mr Hargreaves wants to buy the company on the cheap. He's also in effect issued another profits warning by admitting that dividend cover next year won't be anywhere near that of retailing rivals. All in all, this is no way for the chairman of a publicly quoted company to behave. He should be asked to resign, even though this would be a hollow gesture given his controlling, 53 per cent shareholding.

Has Ferrovial overpaid for BAA?

Slowly but surely, the Office of Fair Trading is inching towards ordering a fully blown Competition Commission investigation of the UK airports market. In May the OFT announced it was considering a market study of the sector. Yesterday, it said that it had decided officially to launch such a market study. This will be carried out with a view to deciding whether to refer the matter to the Competition Commission for further inquiry.

My goodness does due process take its time, for we can only assume that John Fingleton, the OFT's chief executive, has already decided to go the whole way to a Competition Commission reference anyway. He wouldn't have come this far had he not thought the case a compelling one.

When the OFT originally dropped its bombshell slap bang in the middle of Ferrovial's bid for BAA, Britain's biggest airport operator, I rather assumed it would hole the endeavour below the water line. Would bankers really want to finance a highly leveraged takeover whose target was under threat of breakup? It seemed unlikely.

As it was, Ferrovial's chairman, Rafael del Pino, and his backers were made of sterner stuff. They forged ahead as if nothing had happened.

This ballsy response was lent support by BAA, which having spent most of the last 10 years making the case against break-up performed a full on, vaulting, 180 degree U-turn, and began to argue that a limited break-up might not be such a bad thing after all if the quid pro quo was an easing of price controls.

Ferrovial will in any case need to sell some BAA assets in order to pay down debt. Some sort of a limited break-up is in all probability already in the script. Yet if the break-up eventually ordered is a more substantial one, Ferrovial may be in some difficulty. The OFT's background paper on the matter published yesterday talks not just of a break-up in ownership between individual airports, but perhaps a break-up of the airports themselves, so that different operators run different terminals and runways. This would very definitely not have been in Ferrovial's thinking.

Nor, I imagine, is there any likelihood of an easing in price controls by way of compensation. Mr Fingleton raises this prospect, but I'm not sure he fully appreciates the degree to which planning and environmental constraints prevent any possibility of real competition in this sector. If BAA had a free hand on pricing, it could easily get away with charging considerably more than it does for the use of Heathrow, since this is the London airport most favoured by airlines and passengers.

In a free market, it might on the other hand be forced to charge less than the economic cost of the capacity for use of Stansted, which was only built in the first place because that's where the Government determined that new airport capacity should be located. No one's going to thank the OFT if the end result is that landing charges double at Heathrow and investment in new airport capacity grinds to a halt.

Whatever regulators order by way of break-up, some form of price regulation will have to continue, both to prevent pricing abuse at Heathrow and to ensure that Britain's need for new airport capacity continues to get met. In any case, the celebrations in Madrid over Ferrovial's British conquest may be short lived.

Costs of BSkyB's broadband assault

BSkyB always has been a jam tomorrow company and always will be. Get used to it. First it was the cost of building the satellite platform and multi-channel audience. Then came the digital switchover, followed in short order by the need to see off the competitive challenge from OnDigital with a set top box giveaway. Now there's high definition television and broadband to soak up the cash.

Investors travel in hope of eventually reaching that distant horizon of payback time, but one way or another it just keeps on receding. According to analysts, Sky's launch into the mass broadband market, due in the middle of this month, will knock anything between £70m and £100m off profits in the first year.

As with the early years of multi-channel TV, we are in land grab territory. Getting the punters signed up does not come cheap, even with the cross promotional opportunities afforded through Sky's monopoly position in pay TV. What's more, Sky's expansion into the broadband and telephone markets is in any case more defensive than expansionary. Others too are scrambling to offer triple and quadruple plays, where pay TV, broadband and telephony are all bundled together under a single charge. Sky couldn't afford to be left behind.

All that said, it is not as if Sky is any longer a consumer of capital. On the contrary, it is throwing off cash as never before, notwithstanding the investment in broadband and high definition TV, allowing for the resumption of dividend payments and a sizeable share buyback programme on top.

Rupert Murdoch, the chairman, will never be happy resting on his laurels. In this respect, his son and chief executive, James, is a chip off the old block. They'll always be looking to invest in the next big thing. Yet for the time being, they seem to be getting the balance between risk and reward about right. The broadband offering, when it comes, should be an exciting one.

Hazards of operating in US

Never mind the US extradition treaty, which caused business leaders to march on the Home Office this week. Operating in the US seems to be a hazardous business all round to judge by the welter of price-fixing allegations there have been against British companies over the past couple of weeks.

First, British Airways and BP, now Smith & Nephew, which was yesterday subpoenaed by the US Justice Department over the soaring costs of orthopaedic products. Fast ageing societies make joint implants and other orthopaedic devices a big growth sector, particularly in the US, where people are rich enough to pay for correction of their aches and pains. Smith & Nephew is a world leader in these products.

What's more, its case is somewhat different from the other two. It hasn't yet been overtly accused of price fixing, and it is only one of a number of companies in this field to be subpoenaed. Yet the clear implication is of cartel-like behaviour. Where other countries just seem to grin and bear it when prices go up in harmony, ever-vigilant US prosecutors invariably smell a rat. In their efforts to prove malpractice, they'll leave no stone unturned. No company with global pretensions can afford to be out of the US, the world's largest market. Yet it is an increasingly harsh environment in which to do business.

j.warner@independent.co.uk

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