<preform>Jeremy Warner's Outlook: Philip Green faces M&S pensions conundrum</preform>

Lies, damn lies...; Jarvis downer
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The Independent Online

Philip Green's latest ruse in the bidding war for Marks & Spencer is to appeal over the board's head to pension fund trustees for information on the company's liabilities. There are two purposes to this manoeuvre. One is to make it seem as if the board is unreasonably trying to frustrate the bid by refusing to give Mr Green the due diligence he demands. If the board won't allow Mr Green to know the true position of the pension fund, then he must seek it by other means. Bad board. Naughty board for refusing to co-operate with the retail financier.

Philip Green's latest ruse in the bidding war for Marks & Spencer is to appeal over the board's head to pension fund trustees for information on the company's liabilities. There are two purposes to this manoeuvre. One is to make it seem as if the board is unreasonably trying to frustrate the bid by refusing to give Mr Green the due diligence he demands. If the board won't allow Mr Green to know the true position of the pension fund, then he must seek it by other means. Bad board. Naughty board for refusing to co-operate with the retail financier.

The other purpose is to soften shareholders up for the idea that their company may not be worth as much as they think. Most large City shareholders say they won't accept any less than £4 a share, yet if Mr Green can demonstrate that it will cost him 30p a share fully to fund the pension fund deficit and any other comforts trustees require, then possibly they can be persuaded to accept less.

The tactic is unlikely to succeed on either count. Mr Green is well advised, and would have realised from the start that a highly leveraged bid for M&S was bound to have consequences for the pension fund. Mr Green will already have a reasonable idea of how much money might have to be injected to compensate the fund for the fact that a heavily indebted Marks & Spencer would be less able to support future pensions than the company is as it stands. If he hasn't, then this is even more of a wing and a prayer endeavour than I'd imagined, and it leaves serious questions about the veracity of the bid's financing.

As for softening shareholders up for a lower bid, that doesn't work as a strategy either. At £893m as of last March, the pension fund deficit is already substantial, yet as things stand, M&S is solvent enough for this not to matter. The trustees would take the view that in the unlikely event of the deficit being crystallised, with the fund unable to meet its liabilities to members, the company would be in a position to pay the money instead. However, once geared up by a private equity bid, M&S would become financially less robust and therefore less able to pay up.

The actuarial calculation of the fund's liabilities would necessarily have to become much stricter, which in itself would raise the size of the current deficit and trigger demands on the company for the immediate injection of more money. The company therefore becomes worth less in private equity hands than if left in its present position. It is as if another debt has popped up on the balance sheet that hadn't before existed. The effect is Mr Green may not be able to bid as much as he wanted to, yet it doesn't affect the value of the company to present shareholders one iota. Mr Green's hand is weakened; the board's hand in rejecting the bid is strengthened.

Why Mr Green is attempting to make such propaganda out of what for him is a very negative set of issues is beyond me. If the position of the pension fund means Mr Green cannot afford to pay what it takes, then that's his look out. Meanwhile, word reaches me of a serious division of opinion at Goldman Sachs, one of Mr Green's biggest backers, as to the wisdom of hitching the investment bank's wagon so unambiguously to Mr Green's locomotive. There are mutterings about the damage to reputation the relationship might do with other corporate clients. I wouldn't yet say that Mr Green's endeavour is coming off the rails, but he definitely needs a break.

Lies, damn lies...

At the risk of further labouring an overused cliche, there are lies, damn lies and statistics. Yesterday, the Statistics Commission waded into the debate over whether the National Accounts truly reflect what's going on in the economy by firing off some carefully worded criticisms of the Office for National Statistics, the organisation which collates the numbers. The ONS could have done more to reform key aspects of the figures at an earlier stage, the commission said. There's still much to be done. A binding code of practice needs to set up, while the commission's own powers to investigate and report to Parliament should be put on a statutory footing. It is good to know that self-perpetuation is so high up the agenda.

The Chancellor has long thought key elements of the national accounts flawed, in particular their assessment of the output and productivity of the National Health Service. However, it would be unseemly for the Chancellor directly to criticise the ONS, or to try to influence its affairs, because he would then be accused of political interference, of attempting to cook the books to suit his own agenda. So four years ago, he set up the Statistics Commission, a nominally independent body whose brief it is to ensure that the statistics are trustworthy and sufficiently responsive to public needs.

In fact the Statistics Commission is about as independent of the Treasury as the executive committee of the Normanton Labour Party. Indeed, its main function seems that of constantly bashing the ONS about the head on the Chancellor's behalf.

Last week the ONS changed the methodology for measuring the output of the National Health Service with seemingly miraculous effect. Joy of joys, the NHS's output is growing nearly twice as strongly as previously thought, thoroughly vindicating the extra spending the Government is heaping on it. What a relief. We can now all rest assured that our tax is being well spent after all. Yet not all changes to the statistics are simply for the purpose of showing the politicians in a better light.

In a separate change, it was found that the amount of money which has gone into final salary pension schemes over the last eight years was £53bn less than previously thought because the ONS had counted money being switched from one fund to another as new money. The savings gap therefore turns out to be much larger than the Government made it out to be. Hey ho.

Jarvis downer

Steven Norris, the chairman of Jarvis, is not the sort who admits to errors of judgement - except perhaps in his personal life - but with his share price down another 30 per cent yesterday, he must be starting to wonder where it all went wrong. As the Tory candidate for mayor of London, Mr Norris had all the excuses he needed to stand aside from Jarvis, which as a key member of one of the Tube privatisation consortia, gave him an obvious conflict of interest. As is his wont, he refused to accept there was anything wrong with riding both horses. Yet if Jarvis was intended as the back-up, it plainly isn't working.

After last week's fresh barrow load of nasties, it is hard to conclude this company has any kind of a future. It now falls to Mr Norris to try to salvage at least something from the wreckage for shareholders. It will be a long, and difficult task, for which he will receive little thanks and scant reward.

From the moment Jarvis tragically became involved in the Potters Bar rail crash, it has been just one thing after another for this one time stock market glamour stock. Many will regard its story as an indictment of the private finance initiative more generally. Jarvis hardly makes much of an advertisement. There's no official finding yet on Potters Bar, but circumstances point strongly to incompetence or, worse still, negligence. It was in schools and university accommodation construction and maintenance contracts that the biggest damage was done. In many instances these have been either not up to scratch or way behind schedule.

Jarvis is largely the author of its own misfortunes. There is nothing systematically wrong with the way private-public partnerships have been set up. Many of them are far more generous to the private sector, at the expense of tax and fare payers, than they ought to be. The fault lay with Jarvis, which bid too low for many of its contracts and couldn't deliver. The company made the classic management mistake of attempting to expand too far too fast. Mr Norris must attempt to pick up the pieces.

jeremy.warner@independent.co.uk

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