Jeremy Warner's Outlook: Plucky little Stock Exchange sees off a fourth bidder. Others are learning from its example

Commission gets it wrong on Ottakar's; An Icelandic saga: trouble in Reykjavik
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The Independent Online

Are British companies demanding too much from the queue of private equity houses and foreign buyers lining up to bid for them? Private equity accuses them of an outbreak of irrational exuberance in the prices they seek. Valuations which just a year ago would have seemed bountiful in the extreme are now being turned down flat, without so much as a gentlemanly discussion. All over the shop, bids are failing, or being withdrawn.

The latest to return home with his tail between his legs is Nasdaq's Bob Greifeld. He must have imagined his 950p a share bid for the London Stock Exchange a knockout blow when he first arrived, but now LSE shareholders say the company is worth that merely on a stand-alone basis. Any bidder must pay a big premium on top.

From BAA to HMV and Kesa, and from ITV to Associated British Ports, bid proposals are being rebuffed right, left and centre by investors and boards increasingly prepared to take the risk themselves of higher levels of leverage and the rewards they might bring.

For the LSE at least, the decision was something of a no brainer. Clara Furse, the chief executive, has pluckily seen off one bidder after another - first Deutsche Börse, second Euronext, then Macquarie, and now Nasdaq.

There's always someone, apparently, prepared to pay more. Next up is the mighty New York Stock Exchange. It would have been silly to give way to Mr Greifeld, who had opportunistically nipped in while the NYSE was still busy demutualising, while there is still such a high prospect of an eventual bid from New York. In any case, the LSE seems to be doing quite well enough on its own, to judge by recent figures.

As for the others, the fighting spirit now being demonstrated can only be for the good. It doesn't help the private equity firms, with billions of new money to invest, but that's their lookout. At least they can console themselves with the thought that they are performing a public service by helping to galvanise the British boardroom.

Commission gets it wrong on Ottakar's

The Competition Commission misses the point in provisionally clearing HMV's bid for Ottakar's. The issue was never about price competition in the book market, though in this respect at least, the commission is right: the internet and supermarkets provide as much price competition as you could want, far too much of it, in fact, as far as Ottakar's is concerned, which earlier this week revealed that heavy price discounting had forced it into the red.

If you want cheap, just go to Amazon, and if you really must buy the latest Harry Potter at less than it costs to produce, try Tesco, whose loss leading tactics are undermining not just independent book retailers, but the high street as a whole.

Rather, the issue is about variety. By definition, any merger which creates a player with as much as a quarter of the entire market is bound to dilute consumer choice, the more so in book retailing, where there are literally hundreds of thousands of titles to choose from when stacking the shelves.

The Competition Commission dismisses as misplaced the concern expressed by high ranking members of the literati that the takeover would damage the variety of stock, and, in particular, locally determined book buying policies. In fact, claims the CC, the range of titles is much the same at both companies, and contrary to popular opinion, Waterstone's does allow some local buying.

I cannot say I recognise this finding from my own experience. It is hard to recall the last time I came out of a Waterstone's clutching the title I was looking for. Ottakar's is by contrast a more pleasing, satisfactory and surprising experience. These differences won't survive the homogenisation of the merger.

The only decent argument for allowing this takeover is that book retailing is being massacred by the internet and therefore needs to bulk up to survive. Personally, I cannot see how removing Ottakar's from the firmament is going to help. By further diluting choice on the high street it will only provide another excuse for shopping on Amazon.

The original cause of the mischief was the outlawing of the net book agreement, which had served the book buying public well by allowing a flourishing independent retail sector selling the widest possible selection of titles. Price discounting since then has been almost wholly focused on a narrow range of popular titles, making it progressively less economic for established booksellers to support the ranges once stocked.

The bestsellers, defined as the top 5,000 titles, are about half the total market. If a substantial proportion of this business is now selling through supermarkets and online, it makes pure bookselling hard to sustain. The process has been greatly exacerbated by the hypocrisy of publishers, who claim allegiance with the authors and the independents while at the same time supplying Amazon and the supermarkets at cut rate prices.

Still, too late now. Ottakar's is loss making, and HMV is in trouble too, though this is more to do with the music stores than Waterstone's. It seems unlikely given the deterioration that has occurred since the commission started investigating, that HMV will renew its bid on last year's 440p a share terms. Yet after itself turning down a private equity bid from Permira, HMV knows only too well the dangers of low balling.

An Icelandic saga: trouble in Reykjavik

This is the first time I've put pen to paper on the Icelandic economy, and I rather suspect it will be the last. For a country which has a population no bigger than that of Nottingham, Iceland is generating an awful lot of column inches right now. That's not just because of the hyper acquisitive Baugur, the Icelandic retailer which has been buying up the British high street; it's also because the economy seems to be going down the drain.

In normal circumstances, such an event would go almost wholly unrecorded on these shores; it would only matter to the extent that Baugur will presumably no longer be able to afford to shop here. The reason it takes on a deeper significance is that much the same thing seems to be happening in an array of similarly once buoyant smaller economies - Eastern Europe, Turkey, Israel and New Zealand.

The effect of high interest rates in these countries relative to the big developed economies has been to attract a wall of hot, international money, able to borrow cheap and lend a lot more expensively. This in turn has fuelled a boom in domestic demand. The success of these so-called "carry trades" depends vitally on the currency remaining strong. The moment it wavers, as has happened in all these countries with the economic boom reaching unsustainable levels, the capital takes flight.

As the crisis in Reykjavik deepened yesterday, Iceland's central bank was forced to jack up interest rates by a further 0.75 per cent to 11.5 per cent so as to defend the currency and stop inflation spiralling out of control. Does this rash of crises in small economies presage a wider contagion, similar to the Asian crisis of the mid to late 1990s? Countries which have enjoyed big inflows of hot, foreign money, such as South Africa, certainly look vulnerable as rising interest rates around the world force an unwinding of the carry trades.

Yet at this stage there seems little reason to believe the effect more widespread. The losses being incurred by international capital in the likes of Iceland are too small to threaten wider systemic failure. Most bankers remain of the view that the situation is containable.

Credit conditions are tightening globally, but there is no reason to believe these little local difficulties will result in a fully blown credit crunch. For Baugur, on the other hand, and the mysterious Icelandic banks that finance it, the situation is a serious one. Trouble at home means quite possibly trouble for their string of UK acquisitions too.

j.warner@independent.co.uk

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