Jeremy Warner's Outlook: mmO<SUB>2</SUB> plans mass execution of small investors

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Baroness Thatcher's dream of a shareholders' democracy where every household would own a share of British industry went unfulfilled, but her various privatisations did manage to create more than a million new investors who had never before owned shares.

Baroness Thatcher's dream of a shareholders' democracy where every household would own a share of British industry went unfulfilled, but her various privatisations did manage to create more than a million new investors who had never before owned shares. With the roaring 1980s but a distant memory, companies are now queuing up to get rid of them. The latest to join the throng is mmO 2, which inherited about a million investors with 600 shares or fewer from its days as part of British Telecom. When the two companies demerged, mmO 2 got the same share register as BT.

The mobile group's reasons for wanting to execute this huge tail of unwanted shareholders are understandable enough, and, no, it's not because small shareholders tend to ask the most awkward questions at annual general meetings. Rather it is to do with the costs of servicing them, and the fact that most of these investors seem almost wholly disinterested in the company's affairs.

Costs have become an issue because mmO 2 has finally reached the position where it can pay a dividend, albeit not very much. In order to do this it has to go through a complicated financial reorganisation to create the requisite quantity of distributable reserves. It's always good to see a company start paying dividends, but in mmO 2's case, the amount is at this stage so small that for many of the company's one million plus shareholders the costs of sending out the cheque is more than the value of the dividend.

The terms of the buyout are not ungenerous. The group is planning to place some £300m of stock with larger investors so as to be able to offer small shareholders a 5p a share premium to the market price. Nor is mmO 2 forcing shareholders to sell, though they have to take action to avoid it. To sell through the stock market would involve a minimum commission of about £15 per shareholding, so in many respects, it's not a bad deal that's being offered.

None the less, no one bought into the British Telecom privatisation in the expectation of such a shabby end. Adding the BT share price to that of mmO 2, the investment has barely kept pace with inflation in the 20 years since the original flotation, even taking account of dividends. To be forcably bought out just as mmO 2 seems to be showing unmistakable signs of rising from its death bed is indeed an ignominious end to Lady Thatcher's dream of a shareholders' democracy.

By restructuring in the way it is, mmO 2 also expects to rid itself of its US listing, together with the mountain of obligations from Sarbanes Oxley to US compliant accounts that the listing carries. This to was a throw back to grander days, when a US listing was as much a must-have corporate fashion accessory as a large share register.

Taken together, mmO 2 reckons, the measures should save it £6m a year in costs, a sum which pales alongside the investment banking and legal costs of doing the exercise but ought over time to pay for itself. The company may be right in assuming the majority of its small shareholders will welcome the cash exit they are being offered. Many will go gladly to their execution, thoroughly disillusioned with the whole experience of direct share ownership.

Yet the death of the small shareholder is not a welcome development. The corporate scene will be all the less accountable and disconnected for it.

Dixons' lament

John Clare, chief executive of Dixons, complains that the Bank of England put up interest rates to take the heat out of the UK economy, "and, by God, the heat has been taken out of it". Yet he's virtually no chance of the interest rate cut he's looking for, not at this week's meeting of the Monetary Policy Committee anyway. A brief analysis of Mr Clare's figures tells you why. In fact Mr Clare had quite a good Christmas relative to many other retailers, with underlying sales up 3 per cent in the four weeks to 8 January.

The headline number, on the other hand, disguises what is a quite remarkable, underlying story. Sales in the core Dixons and Currys chains were strong, but at PC World sales were down 3 per cent. The fall in sales at PC World is explained entirely by price deflation, which according to Mr Clare was an astonishing 20 per cent for desk-top computers last year. The number of unit sales at PC World over the four week period were, by contrast, up a healthy 7 per cent, while transactions were a tenth higher. But for price deflation, Mr Clare would have had one of his best Christmases ever.

One glance at the post Christmas offers shows that there is to be no let up. Today, it's possible to buy a perfectly respectable Dell laptop, with state of the art wireless technology, for little more than £500, inclusive of VAT and delivery. Fast back five years, and the equivalent model would have been priced in the thousands of pounds, for which you would have got less than half the computing power. The new Mac mini is to go on sale at just $500, or £266. Just how low can these prices go? A lot lower yet, I'm reliably informed.

Perhaps regrettably, this price deflation isn't a miracle of the UK economy, but is being imported from the Far East and America, and it is one of the few things which is keeping the overall rate of inflation in the UK below the Government's target of 2 per cent. It is also helping to generate very healthy levels of product demand. Prices for many indigenously produced goods and services are meanwhile inflating away like there's no tomorrow. The debt-fuelled demand created by low interest rates has been good for Dixons and other high street retailers, but it has arguably been quite bad for the overall health of the UK economy. Much as it hurts Mr Clare, the Bank had to call time at some stage.

Aggregate demand

The runaway leaders of rugby's Zurich Premiership this year are Leicester Tigers, thanks in part to the cash ploughed in by Peter Tom, the club's chairman and biggest shareholder. Now the Swiss are about to walk away with his other business, Aggregate Industries, which yesterday said it was "minded to recommend" a £1.8bn offer from Holcim. Mr Tom and his family will make £29m out of the deal - not bad for a Leicestershire lad who left school with few formal qualifications and the added handicap of being dyslexic. The windfall might be even bigger if Holcim's approach manages to spark off an auction.

What is it about a dull old industry like aggregates that is generating such bid interest? If AI succumbs it will be the second big quoted UK building materials group to be swallowed up by an overseas rival in short order following the £2.3bn purchase of RMC by Mexico's Cemex. Blue Circle, the biggest of the lot, fell to France's Lafarge some years ago.

Neither RMC nor AI, no matter how well-managed the latter, are obviously attractive bid candidates. Both are largely located in the mature, low-growth markets of western Europe or America. Their suitors, on the other hand, operate mainly in high-growth developing nations. Holcim may be Swiss but it makes its money in emerging markets.

The attraction lies rather in consolidation. The world's aggregates industry is itself being aggregated as a smaller and smaller band of dominant players emerges. In that scheme of things, AI is a bit player, even if an important one. A takeover will allow Holcim to become more vertically-integrated, controlling both the quarries and the supply of the end product. In most businesses it is a bad idea to buy your supplier but in aggregates it seems to result in better pricing power.

Holcim's operations are largely complementary, so it should have little to fear from the competition authorities, unlike other potential trade bidders. Now that Aggregate Industries is accounted for, what future for Hanson, an increasingly lonely figure in Britain's fast disappearing building materials sector? Hanson was one of the strongest risers in the FTSE 100 yesterday. What a shame Lord Hanson isn't around to see it. Scarcity value alone is making this bit segment of the old Hanson empire one of the most sought after shares around.

jeremy.warner@independent.co.uk

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