Jeremy Warner's Outlook: Mismanagement and profiteering all at the same time. The PFI faces crisis of confidence

ABN Amro: Digging in for a long war; Franklin challenges Virgin's strategy
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The Independent Online

Virtually all the privatisations of the Thatcher years took place at what today look like bargain-basement prices. Clawback arrangements failed to prevent the fleecing of the public purse that routinely took place as each block of assets came up for sale. The City drove a hard bargain, and in most cases got it - most notably with water and electricity, which have since repaid their capital many times over.

Now, according to the House of Commons Public Accounts Committee, the same thing is happening with the Private Finance Initiative. When we read about the PFI, it generally concerns the high-profile disasters - to name but two, the PPP for the London Underground and the National Health Service's new computer system.

Yet there are many others where the smoke and mirrors of complex financing arrangements enable the City to run rings around the well-meaning civil servants who sign up for these contracts.

In particular, the public sector is failing to share in the lucrative benefits that accrue when the debt is refinanced on better terms, or the equity is sold in the secondary market at a bumper profit. This is despite the fact that the foundations on which these refinancing profits are built are the revenues supplied by the taxpayer.

The committee found that under a voluntary code, public sector proceeds from such refinancings have amounted to just £93m, against initial estimates of up to £200m. There is no way of knowing precisely what the private sector sponsors are making out of them, but it will be a multiple of many times these amounts.

Public Private Partnerships, as the PFI has been rechristened, already allow for generous rates of return as compensation for the risks that private investors take on when building and operating infrastructure projects for the public sector. In many cases, the rates of return generated are turning out to be far higher, yet there are few ways in which the taxpayer can share in these gains.

The PFI is on the whole a good thing that allows Government capital spending that wouldn't otherwise take place because of constraints on the public finances. Yet if it gains a reputation for mismanagement and profiteering, it will soon cease to command public confidence. This, I regret to say, is the way it is heading.

ABN Amro: Digging in for a long war

All the protagonists are doing their utmost to keep the ABN Amro bid battle in the headlines, yet the truth of the matter is that the whole thing has run into the sand, and, assuming the consortium bidders don't unexpectedly fold their tents and beat a retreat, the war now seems quite unlikely to reach a resolution until next year.

It's the way of big European, cross-border takeovers, where the year-long, or sometimes longer still, siege is par for the course. Thank goodness for the British Takeover Code, under which much of the jousting that has so far taken place wouldn't be allowed and the whole thing is in any case time-limited.

Yesterday saw both Barclays and ABN setting out their stalls at a UBS investor conference in New York. Royal Bank of Scotland was slated to be there too, but eventually took the view it would be diplomatic not to attend. Meanwhile, Royal Bank of Scotland and ABN, at the insistence of the Dutch regulator, which (don't laugh) wants to introduce more transparency into the process, published documents and correspondence, some of it headed "private and confidential", on their websites which showed ... as ever, there was no agreement on what it all meant.

According to Royal Bank, the documents show that the consortium is perfectly capable of making the bids suggested and that any doubts to the contrary are just misinformation put about by ABN to hide its embarrassment in rebuffing a plainly superior bid. According to the other side, the documents demonstrate takeover offers so conditional they are not worth the paper they are written on.

The Royal Bank consortium makes the claim that a number of the advisers to the ABN camp made an approach offering to help underwrite the consortium offer. Needless to say, this was being vehemently denied last night, but, given what tarts investment bankers are, it seems eminently plausible. If the Dutch regulator expected enlightenment from publication, all he's got is more mud-flinging.

In any case, nothing will now happen until ABN shareholders vote on the sale of LaSalle some time in June. No date has been set so far. Even then, it is not clear how the vote might influence the outcome. One possibly significant point to be drawn from yesterday's documents is that RBS seems to have dropped the condition in its offer for LaSalle which relates to the elimination of Bank of America litigation.

This makes the offer for LaSalle a good deal more plausible than it was previously, and makes it more awkward for the ABN board to continue rejecting the consortium in favour of Barclays and Bank of America. All the same, it hardly resolves the legal quandary the ABN board has got itself into and, in any case, there is still a big question mark over the deliverability of the consortium offer.

In the meantime, ABN's attractions will continue to fade. There is nothing like uncertainty to make banking a wasting asset. The best people and clients will walk, particularly in wholesale banking, one of ABN's major attraction points. RBS's Sir Fred Goodwin is absolutely determined to succeed, but, if by any chance he doesn't, trashing the business for Barclays is not a bad consolation prize.

Franklin challenges Virgin's strategy

Despite the billions which over the years they've poured into digging up our streets, the Americans have never quite got it about the UK cable industry. In the US, cable is the preferred method of receiving TV for tens of millions of city dwellers. In Britain, it battles against both Sky and now Freeview for delivery of multichannel TV. Cable has not yet managed to get the measure of this competition.

The problem always used to be blamed squarely on the fragmented way in which the Government chose to franchise cable TV rights. Yet today, the industry has been merged and consolidated into just one company, and still, as demonstrated by contrasting figures last week from BSkyB and Virgin Media, it continues to struggle.

With Sky having recently removed its non-premium channels from cable after a manufactured row about carriage charges, that situation stands to get more serious still in the short to medium term. It is only three months since NTL relaunched as Virgin Media, so it is early days, but the new brand is hardly off to a flying start.

Virgin Media is entirely a British company in terms of its operations, but it is quoted and domiciled in the US, and the majority of its shareholders are probably American-based. One of the largest, Franklin Mutual Advisers, yesterday put the company on notice that it wanted to discuss, among other things, strategic direction, corporate governance and management.

Franklin joins a growing list of activist investors determined to do something about their underperforming charges. Reading across to the superior share ratings that Virgin's American counterparts enjoy, it is not hard to see why it thinks there is work to be done.

Virgin's "four play" - TV, broadband, mobile and landline telephony all under one roof - is failing to deliver in the manner anticipated. American investors are already assuming this is down to management and strategic failings.

What does Bill Huff, the hedge-fund manager who forced through the refinancing and subsequent merger of NTL and Telewest, think about it all? If anyone can be said to be responsible for the present management, it is he. Last year, he turned down a decent offer from private equity. He thought the company worth much more. As yet, there is very little evidence of it.

j.warner@independent.co.uk

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