Jeremy Warner's Outlook: Stanley Leisure left standing at the altar as London Clubs falls for America's Harrah's

Housing rebound has lessons for US; BAA will struggle to resist break-up case
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The Independent Online

Mesdames et Monsieurs, faites vos jeux. Impatient and apparently unwilling to await the outcome of the race to secure the rights to Britain's first super-casino, Harrah Entertainment, the world's largest gaming group, has moved pre-emptively to establish an immediate UK presence by making an agreed offer for London Clubs International.

The £280m bid breaks up the previously agreed nil-premium merger London Clubs was planning with its rival casinos operator, Stanley Leisure. But the game is far from over yet. With shares in London Clubs last night trading above the 125p value of Harrah's offer, the market is already gambling on rivals.

Stanley itself is in no position to match the terms, but its largest shareholder, Malaysia's Genting, another giant of the international casinos business, certainly would be. Genting is also a near 30 per cent shareholder in London Clubs, and was instrumental in forging the planned merger between the two.

The Malaysians were yesterday playing their cards close to their chests, but I doubt they are happy to see their plans so comprehensively trashed. There are others for whom London Clubs would be little more than small change too, notably MGM Mirage and one or two of the other American-based players keen to take advantage of the present wave of deregulation to enter the European market. Who knows, perhaps even Ladbroke would want to re-enter the casinos business.

London Clubs could hardly be described as a national champion; it is actually the smallest of the four main UK-based casino operators, so even if casinos were an industry politicians thought worth saving for the nation, nobody is going to get too upset at the prospect of this company falling into foreign hands. Yet having put the disasters of the past behind it, London Clubs is perhaps the best managed and most promising of the UK operators, with a much coveted pipeline of so far unused casino licences.

As far as the big one is concerned - the super casino - London Clubs doesn't appear to be in the running. But Harrah very much is. It would be the operator if either Glasgow or Blackpool won the race.

London Clubs is a far cry from the ambitions Harrah had for the UK market just a few years back, when the Government was planning to turn Britain into a gamblers' paradise by opening up the market to all comers. Ahead of the Government's climbdown, Harrah had plans for a number of Las Vegas style super casinos.

Yet the owner of London's Golden Nugget and Sportsman isn't a bad consolation prize and makes an excellent platform for Harrah's wider European ambitions. The big question. Will Harrah's rivals allow the company its place at the tables? Watch this space.

Housing rebound has lessons for US

Just as the Bank of England was beginning to think house price inflation tamed, it has come surging back. Nor does this appear to be a phenomenon confined to London and the South-east, where buoyant City bonuses and burgeoning foreign demand make for a completely different set of rules to the rest of the country. The latest Nationwide survey suggests a wider resurgence.

Most of the transactions which go to make up the index would already have been in the pipeline before the last interest rate rise, so you could argue that the new data has no direct policy implications. Yet this would only be the case if the revival in house price inflation was a one-off blip.

Retail sales are reviving, economic growth is accelerating and even business investment, after years of stagnation or even decline, is beginning to pick up again. If unemployment is rising too, that's only because the workforce is increasing faster than the jobs can be created.

Few believe that the Bank of England's Monetary Policy Committee will raise rates again this month, but depending on the news flow it might well do so in October. In any case, with the targeted inflation rate edging towards 3 per cent, there would appear to be a greater need for higher rates in the UK than the eurozone.

The European Central Bank left the eurozone rate on hold yesterday, but its body language continues to suggest imminent action. Meanwhile in the US, all the talk is of going the other way and cutting rates. The speed of the US housing downturn seems to have taken everyone by surprise, and although use of the dreaded "R" word is still thin on the ground, there is no doubt that some parts of the US are heading for much tougher times.

Still, Ben Bernanke, chairman of the US Federal Reserve, can take some comfort from the UK's experience. Even in economies as highly geared to the housing cycle as the US and Britain, it would seem that house price inflation can indeed be cooled without necessarily sending the market off a cliff or plunging the wider economy into recession.

A year ago, the Bank of England cut interest rates because a majority of the MPC thought the previous tightening had been too harsh. With the benefit of hindsight, this was a mistake. Subsequent revisions to the data show that the economy wasn't as subdued as then thought. A rather longer and more acute period of monetary tightening may now be required to bring inflation back under control.

Where the US housing market heads from here is the $64,000 question of economics right now. Yet I suspect the doomsters will again be proved largely wrong in forecasting economic Armageddon. As long as China keeps booming, America will keep growing.

BAA will struggle to resist break-up case

"BAA rejects calls for break-up of its UK airports". This perhaps wins top prize for the most unsurprising headline of the week, for, having spent nearly £11bn buying the company, Ferrovial of Spain is not about to back the case for pulling it limb from limb.

Yet though the Spanish are bound to fight their corner in the present OFT inquiry as best they can, they must already be reconciled to at least a partial break-up. If they hadn't built this possibility into their takeover calculations, they were being naive. No other developed country in the world maintains such a complete monopoly of its airports infrastructure, and it is becoming increasingly hard to argue it is in anyone's interests other than the owners to maintain it.

It is still something of a mystery that BAA was privatised in its present form in the first place. The explanation seems to have more to do with the Government's desire to continue to dictate how Britain's infrastructure needs should be satisfied than any credible economic or commercial reason.

In the early years at least, BAA's hegemony may have served some purpose by allowing the company to subsidise the costs of building Stansted out of the charges it levied at Heathrow. The creation of this great slab of excess capacity in turn allowed for the emergence of the new breed of low-cost carriers which, depending on your point of view, have been a boon to the UK economy. Little thanks does BAA get for it from Ryanair's Michael O'Leary.

Yet today, cross subsidy is specifically banned by the regulator, the Civil Aviation Authority. Allowable charges are determined individually for each airport. To the extent that there was an economic purpose in keeping the airports together, it has now largely been lost. A second runway at Stansted would have to be funded by Stansted alone. Unsurprisingly, Mr O'Leary doesn't like the idea, especially as it would only help support more competition to him. Equally unsurprisingly, British Airways and other Heathrow users are determined they shouldn't pay for it either.

If the airports are kept together, then the Government is arguably in a better position to over-rule this self-interested carping and dictate in the wider interests of the travelling public where new capacity is built and when. However, this only makes sense if you believe that politicians are likely to be better arbiters of the process than the market. Experience tells us that it is competition, not regulation, that serves the consumer best. There is no reason this shouldn't apply as much to airports as anything else.

j.warner@independent.co.uk

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