Jeremy Warner's Outlook: Macquarie will have to do better than this if its billabong bid for the LSE is to succeed

Aviva braves an orphan assets raid; Another changing of the guard at UK cable

Once a jolly swagman sat by the billabong.... Had Macquarie's Jim Craig marched into the London Stock Exchange wearing a cork hat and singing Waltzing Matilda as he went he could scarcely have been taken less seriously. As it is, the quietly spoken Australian was forced virtually to admit yesterday that the 580p a share now formally on the table is only an opening shot. Despite his protests, he cannot seriously believe that LSE shareholders would accept such an offer. Instead he concedes that it is just "the start of a process".

The Takeover Panel's deadline was looming, and Macquarie had to get something on the table if it was to stay in the game. Unfortunately, Macquarie may already be constrained in how far it can up the ante. Even if the Australian investment bank were capable of going to 650p a share, about the minimum LSE shareholders would accept, it might not be allowed to.

Macquarie has already talked of the price being "challenging" and vowed to adopt a "disciplined approach" to what's on offer. Such comments might be regarded as a deliberate attempt to mislead the market if Macquarie was then to turn around and bid even as little as 620p a share. In itself, that still wouldn't be enough to guarantee success. The LSE's two largest shareholders, Scottish Widows and Threadneedle, have both been buying at prices north of 615p a share in recent days.

But not only is the offer as it presently stands incredible on price, it is also incredible on structure and raises serious questions as to the suitability of Macquarie as an owner and manager of this still key City institution. There's no detail in yesterday's documentation on the breakdown between debt and equity in the financing of the offer, but Mr Craig says that typically the bank would expect 70 to 80 per cent debt in its infrastructure deals.

That leaves about £400m of equity to be found, to be split according to the documents between an oddball collection of unheard of hedge funds, Macquarie itself, a Portuguese infrastructure investment fund, and - no, really, I'm not making this up - the founder of the Billabong sportswear brand, a high net worth Australian called Matthew Perrin.

The list is almost as instructive for who's not in the consortium as for who is. There are no strategic partners, no market participants, and apparently no one with any knowledge of the sort of technology that makes stock markets work. Even Goldman Sachs, once mooted as a possible partner, seems to have been persuaded of the conflict of interest it would face in both advising on the deal and participating in the purchase of an exchange where it is a major user. In any case, it is nowhere to be seen on the list of equity participants.

No wonder Macquarie has to be disciplined on price; it's hard to see what this attempt to buy the LSE with its own money can possibly bring to the party.

I'm not a conspiracy theorist, but the suspicion that the intention of this takeover is merely to take the LSE out at an undervalue before flipping it to the New York Stock Exchange, or some such other Goldman Sachs creature, is hard to ignore. I don't know about Matilda, Clara Furse for one, the LSE's chief executive, is not for waltzing alongsideMacquarie's billabong, and who can blame her?

Aviva braves an orphan assets raid

The City is filled with little known traditions and institutions, but one of the strangest of the lot is the so-called Predecessors Club, an annual dinner for the insurance industry in which the practice is for incumbent chief executives to invite along their predecessors in the job for mutual backslapping, good food and lots to drink.

With the industry now consolidated into a small number of larger players, this used to be a much bigger event than it is now. Despite the grim reaper's relentless swathe, the predecessors have come to outnumber the incumbents. The tradition has it that the longest serving chief executive hosts the event, so no contest there; Sir David Prosser, chief executive of Legal & General, wins hands down. Regrettably, this week's dinner was his last. Next year he'll just be another predecessor.

Next up is Richard Harvey, chief executive of Aviva. This is almost odder than the event itself, for it seems like only yesterday that he was being widely dismissed as far too young to be the next chief executive of Norwich Union. Norwich then merged with Commercial Union, which had only just itself merged with General Accident, the new leviathan became Aviva, and Mr Harvey now finds himself the grand old man of the insurance industry.

It therefore seems somehow appropriate that it falls to him to be the latest insurance boss to broach the thorny issue of "orphan assets". This is the surplus capital of the with-profits life fund, some of it belonging to untraced policyholders but the great bulk of it simply unallocated profit built up over many years.

Aviva has about £3bn worth of these assets lying around in its Commercial Union and General Accident life funds. It would very much like to use that capital to write new business, but it belongs to the life fund and is as much the property of the policyholders as Aviva's shareholders.

As already announced, Mr Harvey is seeking the appointment of a policyholders' advocate as a first step to gaining access to this treasure trove. The advocate's job is to negotiate a price on behalf of policyholders. If he demands too much, then there won't be any point in Aviva pursuing this unused capital; it would be cheaper to find the money from other sources.

Equally, if it got around that Aviva was attempting to "rip-off" the policyholders, then it wouldn't be worth it either. The damage inflicted on the brand would cancel out the benefit of the low-cost capital. This is what happened to Axa when the Consumers Association challenged the division of orphan assets through the courts. Axa won the case, but was so thoroughly castigated in the process that it ended up losing more than it gained.

So what price unconditional surrender? Aviva is unlikely to be offering any more than an average of a few hundred pounds per policyholder, paid in cash. Not enough, many will think, but the alternative is that the money is just left to fester, serving no purpose whatsoever. Just as Aviva cannot access the capital without policyholders' say so, policyholders cannot access it either without Aviva's say so.

At least this way policyholders get something. It's going to be an interesting, if somewhat arcane debate. Just how much are Aviva's shareholders prepared to pay for this frozen in time capital? Perhaps Mr Harvey should be consulting his predecessors.

Another changing of the guard at UK cable

Simon Duffy seems to have had more jobs over the past 20 years than hot dinners. Now he'll presumably be looking for another, having been forced to stand aside in favour of a hotshot from Comcast as chief executive of NTL, the UK cable company.

This seems a peculiarly awkward time for a change of skipper, with NTL in the middle of both merging with its rival Telewest and taking over Virgin Mobile. The negotiation on both deals was being done by Mr Duffy. Sir Richard Branson, busy launching Virgin Galactic in New Mexico, was blissfully unaware of the change, but he doesn't seem much to care. If the Comcast man, Stephen Burch, can get a grip on UK cable, so much the better from Virgin's point of view.

But what if Mr Burch doesn't fancy the quadruple play strategy behind the Virgin takeover? Oh but he will, purrs a Branson aide. The logic is uncontestable, and, as Mr Burch will know, it's been made to work in the United States. We'll see.

j.warner@independent.co.uk