More than six months of trying to buy Absa, South Africa's largest retail bank, has sorely tested the patience even of the mild mannered John Varley, chief executive of Barclays, and in an uncharacteristic loss of temper he yesterday issued what amounted to an ultimatum - take it or leave it.
More than six months of trying to buy Absa, South Africa's largest retail bank, has sorely tested the patience even of the mild mannered John Varley, chief executive of Barclays, and in an uncharacteristic loss of temper he yesterday issued what amounted to an ultimatum - take it or leave it. The price he's offering, 32bn rand for 60 per cent of the stock, is a good one - better, for instance, in terms of its multiple of book value than Standard Chartered is paying for Korea First Bank.
Yet many of Absa's shareholders like the deal so much they want a continued share of the action, and that's causing Barclays problems. Barclays reckons it can improve Absa's pre-tax profits by 1.4bn rand per annum, which to some South African shareholders makes the price they are being offered look too cheap. Black Economic Empowerment rules oblige Barclays to keep a certain amount of equity back for local interests, and there is in any case to be a continued free float for the stock in Johannesburg. On the other hand, Mr Varley doesn't want to end up as only a minority shareholder, which would prevent many of the hoped-for synergies. If shareholders won't give him at least 60 per cent, then he won't play ball.
Barclays is right to bring matters to a head. This is an important and big acquisition for Mr Varley, yet it is hardly a transformational deal and he needs to move on. The apparent lack of progress in closing is beginning to look like indecisiveness. Mr Varley hasn't been chief executive for long enough for the City to be able to judge him. Yet with costs rising faster than revenues as the bank invests heavily in growth, Mr Varley is at delicate stage of his game plan and needs all the good will he can get.
Some already accuse Barclays of being up a strategic cul de sac, lacking as it is in the overseas clout and ambition of an HSBC or Royal Bank of Scotland Group. Hard to believe, I know, but little more than 10 years ago, the biggest bank in the world by market capitalisation was Lloyds TSB. Today Lloyds appears at one and the same time land locked and becalmed, a minnow against the big fish of the global stage. Slowly but surely, Barclays is adding businesses overseas, but it has got a way to go. Absa would be an important mile stone.
Fighting shy of the nuclear nettle
After years of lurking in the shadows, the nuclear lobby has emerged blinking into the full light of day. Two factors underpin this new-found self-confidence. One is climate change. Nuclear is the only substantial and reliable source of energy supply which doesn't produce any greenhouse gases.
The other is security of supply. Great store is being put by the advance of renewables - wind, sun, and wave - but few believe they are anywhere near capable of filling the gap left by the current generation of nuclear power stations, all except one of which will close over the next two decades.
The Tories have promised to make a decision on new nuclear build within a year of getting into government. Likewise, Labour is keeping its powder dry until after the election, when a new energy white paper is promised.
It may again be fashionable to tout the virtues of nuclear power, but it is plainly not that fashionable. Having a clear nuclear strategy is unlikely to win votes, yet it may still cost them. However, it is an open secret that Tony Blair is now personally full square behind new nuclear build. Government ministers privately accept there is little hope of meeting their emissions targets without it. Only the Lib Dems are definitely against it.
The Lib Dems do this on two grounds, both of which will have to be addressed by any government which wants to put nuclear at the core of any future energy policy. The first is what to do with the waste. A long-term repository has still to be found even for the legacy stock of waste, never mind anything that is produced in future. As things stand it just stacks up in canisters at Sellafield, so this is an issue which will have to be confronted eventually anyway. What's more, new nuclear capacity is considerably more efficient than previous generations. In theory it ought to produce just a small fraction of the waste.
Even so, the private sector won't back new nuclear build until an acceptable long-term solution is found. In Finland, the government eventually persuaded rival regions to compete for the nuclear waste repository, but only by offering very substantial incentives, and so far all attempts to do the same in Britain have foundered on the rocks of local opposition.
The other chief objection to nuclear is that historically it tends to be more expensive to produce than rival forms of energy. Yet the gap seems to be closing. A number of recent studies have suggested that nuclear may now be competitive with alternatives. One reason for this is that nuclear construction has become safer and more modular with the passage of years, reducing the risk of cost overruns and outages. The price of fossil fuel, by contrast, can be expected to rise as it grows scarcer. If fossil fuels were to pay their full environmental cost, the difference might become more marginal still.
Even so, a number of things need to happen before the private sector will commit to new nuclear build. For starters, planning regulations have to be reformed. It took 15 years from inception for Sizewell B to be up and running. Building on pre-existing nuclear sites might expedite matters, but it wouldn't entirely solve the problem. Under present planning constraints, the polar ice caps might melt before the first of the next generation of nuclear power stations starts operating.
The New Electricity Trading Arrangements, introduced only four years ago, would also have to be substantially reformed to guarantee a minimum price for new, base load, nuclear capacity. Again, no private sector investor would back the construction of any new base load capacity, let alone nuclear, as long as the market in electricity remains as volatile as it has been. Low electricity prices a couple of years ago bankrupted the privatised nuclear generating company, British Energy. Capital spending of the magnitude required for a new generation of nuclear power stations requires some kind of guarantee of long-term prices.
A private sector solution to new nuclear build is possible, but it requires bold and firm action from the Government first. No political party has yet shown the requisite political will.
Business and politics don't mix
The now ritual, collective letter from business leaders urging the country to vote Labour duly made its appearance yesterday, this time in the letters columns of the Financial Times. There were few surprises among the signatories, who were a predictable mix of ultra-loyal Labour supporters, brown nosers, the avaricious, ambitious and the totally unheard of.
These were mostly people who have done well under New Labour, and, in at least one case, Trevor Beattie of the advertising agency behind Labour's election advertising, out of it. It will take much greater courage to sign the Conservative letter, which is presumably coming, for barring a total upset, there is not much doubt about the election's outcome.
On the whole, business people only suck up to politicians because they hope to get something out of them. I've yet to come across an accomplished entrepreneur who thinks of government as any more than a necessary evil. So what happened to the business leaders who signed up for Labour last time but are absent from this year's letter? As our story shows, they've gone not because of disillusionment with Labour's handling of the economy, but because of Iraq. Unfortunately for the Tories, that's all too likely to be the judgement of the voters too.Reuse content