Jeremy Warner's Outlook: L&G move shows Pru how it should be done

 
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The Independent Online

While the Prudential's Jonathan Bloomer is tossed hither and thither on a sea of troubles, Legal & General has stepped up the competitive pressure with a demonstration in textbook fashion of just how it should be done. Faced with the challenge of "depolarisation", L&G has come up with the obvious solution (only these things are never obvious until they are proposed) - a wrapper product which retains the best elements of the tie while at the same time giving the consumer a wide degree of choice. In so doing L&G's chief executive, David Prosser, has again kept himself one step ahead of the competition.

Long-standing rules which require distributors to be either tied to one product provider or independent of them are being swept away next year to be replaced by a system that allows a degree of multi-tying among big distributors such as banks and building societies.

Mr Prosser has always thought multi-tying potentially too complex for the mass market, so what he's proposing instead is the simplicity of a single platform, as in the present system, but with the consumer able to chose his fund manager or investment mix according to lifestyle. The first to sign up to the concept is Bradford & Bingley. Mr Prosser believes it will fast become a model for others.

In the meantime, Prudential is left floundering around trying to justify an unpopular £1bn rights issue which is ostensibly earmarked for UK expansion. By comparison with L&G, the Pru's johnny-come-lately ambitions for the UK market seem poorly thought out and badly articulated. Prudential lost its ranking among the UK's top five for new business some years ago. The market share of these five - Norwich Union, Standard Life, Scottish Widows, Legal & General and HBOS - has continued to surge ahead, up from 27 per cent in 1998 to more than a half today.

It remains hard to gauge whether Mr Bloomer will lose his job over the series of U-turns in strategy that has occurred over the last year, but the level of bitterness in the City is tangible, and Mr Bloomer's detractors far outnumber his supporters. In such circumstances it is usually only a matter of time.

Nor is his cause helped by growing confusion over the purpose of the rights issue. On the face of it, the Pru's double-A rated life fund contains easily enough surplus capital to fund all the UK expansion the company could possibly want. If the intention is to seek growth outside the life fund, backed by shareholders' capital, then the implications have yet to be properly spelt out. The contrast with L&G could scarcely be greater.

¿ BT's big debate

PLEASE DON'T call it a row, but for some months now there has been a vigorous debate going on at British Telecom over whether to allow BT Retail to invest tens of millions of pounds in its own "local loop unbundling" equipment, or to use the jargon, DsLAMs (digital subscriber line access multiplexers). The reason why this is of more than passing interest - for the amounts involved are not significant within the context of BT's total capital spending each year - is that the purpose of DsLAMs is to bolster the competition to BT, not BT itself.

Local loop unbundling allows competitors to install their own equipment at BT exchanges, so that they can gain access to the "last mile" between the exchange and the customer without having first to go through BT wholesale. For BT Retail to want to install its own equipment raises afresh the old issue of whether BT should be one business at all, or would not be better off demerging retail from wholesale.

BT has argued long and hard with the regulator, Ofcom, that break-up would be complex, costly and detrimental. There is every indication that in its forthcoming review of telecoms regulation, Ofcom has accepted BT's case. Yet at the same time, BT's retail business is having difficulty competing with the cut-price deals on broadband offered by rivals using their own DsLAMS at BT local exchanges.

If BT Retail also had its own DsLAMS, it would be able to play off the the prices offered by alternative wholesale networks against those charged by BT Wholesale, thus making its retail prices more competitive. This seems to make the case for break-up more strongly than any theoretical justification. By allowing the debate to be aired in public, BT is shooting itself in the foot. Having essentially won the argument on breakup, it now seems to be conceding that there could be some benefit for the customer and to BT Retail in it after all.

By the by, any attempt by retail to declare UDI would also damage for BT Wholesale, which gets the bulk of its broadband business from BT Retail and would plainly become less profitable if it were forced to compete for these revenues with rivals. So why is BT having this debate at all?

Who knows, but what certainly adds spice to the situation are the presumed motivations of Pierre Danon, the ambitious Frenchman who heads BT Retail. He seems to be singing from a wholly different hymn sheet to everyone else in proposing that retail has its own DsLAMs. Three years ago, he lost out to Ben Verwaayen in the race to be chief executive of BT. He'd still dearly love to take a run at the job, but that plainly requires Mr Verwaayen to leave.

BT insists there is no row, just an internal debate on the best way forward which is being blown out of all proportion by the press. Well perhaps, but it's all very odd nonetheless. If there is a stand-off developing, Sir Christopher Bland, the chairman, will eventually have to step in and resolve it by firing one of them. You cannot have two bosses in any organisation, even if it is beginning to look more like two than one.

¿ Lord Hanson

Lord Hanson, who died last night aged 82, was a giant among British corporate leaders whose daring takeovers and swashbuckling style came to define the roaring 1980s.

Together with his long standing business partner, Lord White, he grew Hanson Trust from tiny beginnings into Britain's largest industrial conglomerate, with widespread and diverse interests across Britain and the United States. Not for him the caution of today's takeover specialists, where offers are made conditional on board agreement after long and searching due diligence. He and Lord White would decide on the targets - Lord Hanson the British companies and Lord White the US ones - and then risk all to acquire them in protracted, often acrimonious, takeover battles. From London Brick to Consolidated Gold and Imperial Tobacco, his was an all or nothing style which defined the times in which he lived.

Both he and Lord White were in their sixties before they hit the big time, yet at their annual meetings - more hero worship than holding to account - they would sprint on to the stage and leap into a double act of mutual congratulation and eulogy.

Hanson was a passionate supporter of the Thatcherite economics that allowed him to flourish. His was a crusade, not just to extract the greatest possible shareholder value from the assets he acquired, but to transform the industrial scene, making it more efficient, stripping out anachronistic hierarchies and freeing up the innovators.

Yet as often happens with businesses that grow so fast, he eventually tried the deal too far. During his assault on ICI in the early 1990s, Hanson Trust was cruelly exposed for highly suspect standards of corporate governance and the use of elaborate tax-avoidance schemes. With the demise as prime minister of his mentor and friend Margaret Thatcher his power and influence in government waned and so did his business empire, which ended in ignominious break-up. In the many revisionist accounts of Hanson that have been written since, he has been condemned as a latter day asset stripper who starved businesses of necessary investment and whose success was built as much on the illusions of acquisition accounting as management expertise.

Lord Hanson was the candle that burns twice as bright. His glory years at the helm of Hanson spanned little more than a decade, but what a time he and his followers had.

jeremy.warner@independent.co.uk

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