Jeremy Warner's Outlook: OFT's Fingleton applies popularist approach. Provided it doesn't get out of hand, that's fine

Tchenguiz moves on Mitchells & Butlers; 1981: that was when they had real Budgets
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His latest act of popularism is to trash the OFT's previous draft opinion on the arrangements for magazine distribution, which was broadly that the system was anti-competitive and should therefore be outlawed.

The decision to go back to the drawing board represents an outbreak of common sense at the OFT, which under Mr Fingleton's predecessor, Sir John Vickers, seemed fast to be losing touch with the real world in a frequently purist and academic approach to competition policy.

Under existing distribution arrangements, newspapers and magazines are distributed to retailers through a system of exclusive territories, reinforced by absolute territorial protection, which would normally be banned under competition law. Yet the system also works well in ensuring the widest possible choice and distribution for magazines and newspapers. To declare it illegal, if only for magazines, would allow the big supermarket groups to strengthen their grip on all we buy, this at the expense of thousands of small, socially desirable corner shop and village shops.

I should declare my interest here, because newspapers have been some of the most vociferous lobbyists against any change to these arrangements. The OFT has all along accepted that the need for speedy, nationwide delivery, should make newspapers exempt, yet to disentangle periodicals and magazines, making them open to competition in wholesale distribution would undermine newspaper distribution too by making it less cost efficient.

The present system is by no means perfect. Many, even quite small, retailers complain of costly, inefficient and oppressive distribution, where the circulation managers decide how many copies an outlet is given, not the market. Yet it is interesting that only one newspaper group, News International, has failed to join the campaign against change, this presumably because as the largest national newspaper publisher in the land, it has most to gain from the collapse of the present system.

Without it, many smaller titles would not find it viable to have national distribution. Diversity would be threatened, and through it, the very fabric of democracy, though I grant you this does sound a little melodramatic. On the other side of the ledger, bulk buyers - for which read Tesco and other multiples - would be able to negotiate substantial discounts, increasing the effective costs of servicing smaller independents, particularly in geographically remote areas. Their margin on any sales would be cut correspondingly and many would find it hard to stay in business.

To see how what happens with deregulation, look to the US, which went through the process in the mid-1990s. The upshot is fewer wholesalers, fewer retailers and fewer titles. The reality of less choice and less availability has at allowed on at least one occasion the mighty Wal-Mart to even start dictating editorial policy by destocking a magazine whose article on abortion it disapproved of.

As regular readers will know, I'm not a fan of the Tesco bashing we have seen from pressure groups in recent years. Yet there are some things that do need protecting from the vigours of the market. Diversity in the media is one of them.

As for Mr Fingleton at the OFT, he's surely done the right thing in ordering a rethink. If it is true that he has infuriated the deputy prime minister, John Prescott, in packing the supermarkets off to the Competition Commission, then that is some consolation on this front, too.

The supermarkets have found themselves referred again because of supposed failings in the planning system, which help restrict competition. Who's trying to sit in my chair, yells Mr Prescott, who thinks this more a matter for him than the competition authorities. If there's any politicking to be done, it'll be done by the deputy prime minister, thank you very much.

Still, there may be something to be said for the OFT playing to the gallery too. Competition authorities have to be in touch with the popular mood, even if ultimately, and after due consideration, they end up repudiating it. Too purist an approach leads to the sort of muddle the OFT got itself into over magazine distribution.

Tchenguiz moves on Mitchells & Butlers

We are coming up to the third anniversary of the demerger of the ridiculously named Six Continents, and boy what a case study in value creation it has proved to be. Valued at about £5bn at the time of the demerger, investors have since roughly doubled their money once capital returns are taken into account. Most of this value creation has come from the Intercontinental hotels rump, but now it is the turn of the other bit, the Mitchells & Butlers pubs and restaurants group, to take up the running.

Ever since Punch acquired the rival Spirit Group in December last year after a keenly fought auction in which private equity lost out, it always did seem likely that Mitchells & Butlers might be the next port of call. Robert Tchenguiz, the Iranian born property tycoon, was one of the under bidders for Spirit, so his interest was guaranteed. Mitchells & Butlers, on the other hand, is bigger by an order of magnitude than Spirit.

He may have to pay twice as much for this prize as the £1.4bn Punch paid for Spirit. Even for the consortium of private equity players Mr Tchenguiz is trying to arrange, that's quite a bite. What's more, as the cult of equity slowly begins to reassert itself, investors are proving ever more reluctant to take the private equity shilling: to succeed Mr Tchenguiz will have to apply at least the same exit multiple as ruled at Spirit, which would imply a price of at least 540p a share. The shares were still changing hands last night at only 447p a share.

Arguably, Mitchells & Butlers is in any case a better company than Spirit. Under the guiding hand of Tim Clarke as chief executive, sales are continuing to grow strongly, and a greater proportion of properties are freehold. The company has also been more successful than rivals in improving its foods sales, which at approximately 30 per cent of turnover, are now bigger than beer.

Because of its size, Mitchells & Butlers used to be thought more a consolidator than a company to be consolidated. These days, nothing seems too big for private equity, where with money so cheap and plentiful, the rewards of leverage have rarely looked better. For Mr Tchenguiz, there is also the opportunity for substantial synergies. He's already a major player in the pubs market.

As ever in situations like these, there's no guarantee of an offer at a realistic price. Are valuations getting ahead of themselves in the current bidding frenzy? That of course depends on your view of the future of corporate earnings. My own view is that we haven't reached the peak yet, and if private equity still sees value in the stock market at these levels, that rather proves the point.

1981: that was when they had real Budgets

The 25th anniversary of the 1981 Budget is in danger of upstaging its contemporary counterpart. Next week's Budget is likely to be a dull old thing by comparison, but those were the days when Britain was still the sick man of Europe and Budgets were obliged to contain fire and brimstone.

Geoffrey Howe's Budget was so harsh in the medicine it dished out to the nation, this at a time when we were already in deep recession, that it prompted 364 academics to write an open letter in protest, saying that there was no basis in economic theory for the Government's deflationary policies. Were they right?

A new report by the Institute of Economic Affairs insists they were all wrong and that, contrary to their predictions, the economy began to grow, and inflation and unemployment to fall, shortly afterwards.

As in all attempts to reassess history, however, we'll never know what might have happened had a different set of policies been pursued. Many of those who signed the letter are prominent in public life today. One of their number is Mervyn King, Governor the Bank of England, and today something of a monetary hawk. Has he changed his mind? He's far too wise to say. On the other hand Stephen Nickell, another signatory who also sits on today's Monetary Policy Committee, very definitely has not.

j.warner@independent.co.uk

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