Jeremy Warner's Outlook: The 'Telegraph' achieves a trophy asset price

Aviation/pollution; Stagecoach
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The Independent Online

It was always hard to see how 3i could have outbid the Barclay brothers for The Daily Telegraph, and so it has proved. Perhaps strangely for such publicity shy financiers, the Barclays have for years been absolutely determined to have these titles.

It was always hard to see how 3i could have outbid the Barclay brothers for The Daily Telegraph, and so it has proved. Perhaps strangely for such publicity shy financiers, the Barclays have for years been absolutely determined to have these titles. Whether they like it or not, they are now guaranteed a place in the limelight. Their interest in buying them dates back more than two decades. Within reason they would have paid whatever it took.

Lazard Brothers did well to achieve £665m, but the Barclays would have paid even more had 3i and its American venture capital partner matched them at these dizzy heights.

In characteristic fashion, an unrepentant Conrad Black says he's pleased with this apparent confirmation of the hundreds of millions of dollars his management has added to the value of the titles. Yet the truth is that the Barclays would not have shelled out the thick end of a three-quarters of billion pounds for the commercial value of these titles alone.

Their primary interest is in the power and influence they buy. For the Barclays, already approaching the twilight of their years, the Telegraph is an affordable indulgence. No doubt they will be looking for some sort of a payback. The fact that 3i was prepared to go as high as it did is powerfully indicative of the potential upside, given the correct balance of cost cutting and investment. Yet essentially these are trophy assets, bought, like a work of art, more for the purpose of enjoyment than economic value. The Barclays have no outside shareholders. They are answerable only to themselves and, therefore, can use their wealth in whatever way they see fit. They don't have to earn a rate of return. Roman Abramovich's indulgence was to buy a football club. The Barclays have bought a newspaper.

Lord Black criticises Lazard for "a faltering strategic process" which has failed to add to the valuation that the Barclays put on the titles as far back as January. What he fails to point out is that the value Lazard has achieved is one that will be enjoyed by all Hollinger International's shareholders, not just Lord Black. The original deal struck on a unilateral basis by Lord Black with the Barclays suited him very well. By selling the Barclays his controlling interest in Hollinger, he got his money out and he also secured a presumably friendly presence in the boardroom that would not feel inclined to pursue him for his past mismanagement of the company.

For Lord Black, the drawback of the Lazard approach is that he may get nothing out of it at all. When the Hollinger board comes to distribute the £665m to shareholders, Lord Black's share will be held in escrow pending the outcome of the company's $1.25bn lawsuit against its former proprietor.

The game is, therefore, not entirely over just yet. Lord Black threatens to use his controlling stake in Hollinger to block the disposal unless the board reaches an accommodation with him. The board is adamant that the courts won't allow him such a veto. Either way, it may be some months before the Barclays are able to start playing with their newly acquired toy. And then they've got Richard Desmond's pre-emption rights over the print works the Telegraph shares with the Express to deal with.

Aviation/pollution

Slowly but surely, a consensus is developing among European governments and airlines over the need to include aviation in the proposed European Union emissions trading scheme. Led from the front by BAA, owner of Britain's five biggest airports, aviation wants in as soon as possible. This is an interesting example of an industry lobbying for something which, in the short term at least,will quite plainly damage its economic interest, for as things stand aviation isn't part of the Kyoto protocol and technically cannot be included until 2013 at the earliest. It is, therefore, free to grow and pollute all it likes, without the constraints that emission trading will impose on other industries.

This is despite the fact that aircraft are among the world's biggest contributors to global warming. Aviation collectively accounts for about 1 per cent of global CO2 emissions, which in itself doesn't sound that much. Yet because the greenhouse gases produced by aircraft are distributed at altitude, as it were, the effect on global warming is about three times that amount. There's not much point in forcing industry to cut its emissions if aviation is only going to fill the gap.

Aviation wasn't included in Kyoto because the Americans vetoed it, and then didn't sign up to the treaty anyway. Including aviation in proposals to reduce greenhouse gases is in any case highly problematic. Where, for instance, is the burden of enforcement meant to fall? With the airline's country of origin, or its destination? It all seemed just too complicated to think about on top of everything else, and was, therefore, shelved.

As a result, aviation has also been omitted from the European emissions trading scheme, which comes into effect at the beginning of next year. Early inclusion would require a quite considerable degree of co-operation between EU member states. Again, there's the problem of enforcement on a source of emissions which of its nature is largely international. Those nations that place a lesser burden on aviation than others would gain a competitive advantage in a key growth industry. Yet it's not impossible.

So why on earth is an industry which seems to have had a lucky escape so keen to take its punishment? Under the emissions trading scheme, industries are allocated the right to produce a specified quantity of carbon emissions, which is reduced as the years pass. Those that cannot achieve the required efficiencies must buy the right to pollute from those who can. Inclusion in this system would force airlines progressively to replace older fleets with more efficient aircraft. This is not obviously an appealing prospect to an industry already struggling with over capacity and poor rates of return.

Yet it is a lot better than the alternatives, such as nationally imposed taxes designed to reduce the overall level of airline travel. The fear is that unless the airline industry moves voluntarily to set its own house in order, eventually it will be forced to in a manner which is a good deal more unpalatable. It's also, of course, the right thing for airlines to be doing. Companies that ignore their social and environmental obligations will increasingly do so at their peril.

Stagecoach

The 60,000 small shareholders in Stagecoach who have stayed on the bus with Brian Souter through thick and thin have at last got some reward. The £250m return of capital announced yesterday by the bus and rail group's founder and chief executive is not exactly a ticket to riches but it is a lot more than they had a right to expect.

The mechanism chosen by Stagecoach for returning cash through an issue of redeemable B shares looks on the face of it unnecessarily complex. But it is a good deal more equitable than the alternative routes Mr Souter could have taken. Share buy-backs favour big institutions. Special dividends attract income tax. This way a holder of 1,000 Stagecoach shares will receive 1,000 B shares worth 18p each in September, which can either be redeemed immediately or in stages and sheltered from capital gains tax by an individual's £8,200 allowance.

Stagecoach is able to do this because it has got rid of a lot of unwanted baggage, like Coach USA which clambered on board five years ago and very nearly forced the business off the road entirely. Debt is down from an eye-watering £750m two years ago and the share price is back up at 87p, having touched an all-time low of 12p.

Aside from Marks & Spencer, Land Securities and now Stagecoach, it is remarkable how few companies with surplus cash have gone down the road of redeemable B shares. But what is even more amazing is that Stagecoach has been able to reward shareholders at all when two years ago it looked like the next corporate car crash.

jeremy.warner@independent.co.uk

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