Michael Harrison's Outlook: Black propaganda, conspiracy and dirty tricks - the battle for P&O is like the good old days

Reitzle revs up for a tilt at BOC; Yell's arguments fall on deaf ears
Click to follow
The Independent Online

It's reminiscent of those heady days in the 1980s when every week seemed to bring another hostile takeover battle and the dirty tricks departments of the investment banks were made to work overtime looking for ways to undermine the opposition. Right now there is an intriguing piece of black propaganda doing the rounds of the City savagely attacking the Port Authority of Singapore (PSA) over its £3.5bn bid for P&O. PSA is one of two overseas bidders for the venerable ports and ferries group, the other being Dubai's DP World.

The anonymous briefing note suggests that PSA's 470p-a-share approach to P&O, which is likely to graduate into a full-blown bid this week, is in reality part of a dastardly Chinese conspiracy to take over the world.

If you thought that China was a long way from Singapore and even further from Southampton Docks, then you'd be right. But here's the connection. In June last year, PSA paid $925m for a 20 per cent stake in the home operations of the world's largest independent ports operator, Hutchison Whampoa of Hong Kong, a company with very close connections to China. It was, says the briefing note, a "jaw-dropping deal" between two of Asia's bitterest rivals - the maritime equivalent, in fact, of Chrysler buying a 20 per cent stake in Ford's Detroit operations.

At the time, Hutchison described the deal as creating a "strategic alliance" with PSA. And here's the rub, according at least to the author of this little critique: if PSA is allowed to get its hands on P&O, then China will have a stranglehold on both ends of Asia's trade superhighway to Europe. Beware the "yellow peril", in other words. According to this analysis, a Singaporean buyout of P&O would do much more than create the world's largest port operator. It would spawn a Chinese-backed duopoly capable of dominating pricing at some of the world's most important trading gateways. In the UK, the double-headed monster would control 90 per cent of the deep sea container market (Hutchison's 60 per cent plus P&O's 31 per cent) - a dominance that would grow even greater when the London Gateway and Bathside Bay projects reach completion.

It would be a similar picture in Northern Europe with the Hutchison-PSA alliance controlling 85 per cent of terminal capacity in Rotterdam and Antwerp and a similar share at Zeebrugge - the three ports which make up Europe's "trading heartbeat". In emerging markets it would be more of the same, with the alliance controlling more than 70 per cent of throughput at Thailand's biggest terminal and 60 per cent of traffic at Buenos Aires.

The briefing note, which has clearly been written with Brussels' anti-trust watchdogs in mind as much as P&O shareholders, goes on to point out helpfully that not all countries have allowed the Hutchison "juggernaut" to get its own way. Last November, India blocked the Hong Kong company from entering its ports market.

It is not difficult to surmise the origin of the briefing document. But how much notice will the competition authorities take of the evidence and what good will it do the rival bidder DP World? It all depends on how much should be read into the alliance between Hutchison and PSA. Arrangements such as this are not uncommon in ports business - Tilbury is one UK example.

Up until now the general consensus has been that regulation is not an issue and that the takeover tussle will be decided purely on price. Usually it is a sign of weakness when one side relies on the regulators to do its dirty work for it. But in this case, both bidders are state-owned entities with plenty of muscle, very deep pockets and no need to obey the valuation rules which normally apply in takeovers. For that reason, price is likely to matter a lot more than black or yellow propaganda in sealing P&O's fate.

Reitzle revs up for a tilt at BOC

Running an industrial gases and forklift truck company must feel like life in the slow lane for Wolfgang Reitzle after his last two turbo-charged jobs at BMW and Ford, where he was in charge of Jaguar and Aston Martin. Certainly, it pales by comparison with the glamorous lifestyle of his TV celebrity wife Nina Ruge. So what better way for the boss of the German company Linde to add some excitement to his humdrum day job than by launching a £7bn-plus bid for the rival industrial gases group BOC?

With his pencil moustache, slicked-back hair and sharp suits, Mr Reitzle was not known as Errol Flynn for nothing during his time at BMW. He left the German car maker after losing out in a power struggle for the chairman's job and was quickly recruited into Ford by Jacques Nasser, where he eventually proved to be a little too high-octane for the sober suits in Detroit who run the Blue Oval. Since then he has been swashing his buckle in the world of industrial gases and looking for some corporate action. Linde and BOC are said to have been in indeterminate discussions about a merger for months and when Mr Reitzle sensed the talks were getting nowhere, he decided to make an outright bid.

It is a cheeky one because Linde is only two-thirds the size of BOC and would have to raise a mountain of cash to finance the deal. It says that with Deutsche Bank, Allianz and Commerzbank among its shareholders, financing is no problem. But the market is more sceptical and while BOC shares put on a 24 per cent spurt yesterday, they still closed more than £1 below the £15 which Linde is said to have offered.

Likewise, the BOC board had no hesitation in rejecting the approach, citing the price and uncertainties surrounding financing and anti-trust clearance.

This is not the first time that BOC has been on the wrong end of a bid. Six years ago it agreed to a three-way merger with Air Liquide and Air Products on the advice of its lawyers that there were no competition issues, only to see the regulators blast the deal out of the water. Linde argues that in this instance there are virtually no overlaps between it and BOC. Nevertheless, it is easy to see why BOC should be cautious about being bitten twice.

But the main obstacle this time seems to less about whether Linde can jump the regulatory hurdles and more about its firepower to pull off the deal. Mr Reitzle is nothing if not supremely self-confident so stand by for more action.

Yell's arguments fall on deaf ears

Having a regulator is a poor substitute for being regulated by the market. Judging from the Competition Commission's "emerging thinking" about Yell's dominant position in classified directories, the company looks unlikely to escape price controls any time soon. The Commission has chosen to ignore the re-entry on the scene of a 1,000 pound gorilla in the shape of BT and the fact that many consumers let their fingers do the walking across the keyboard and not through the printed pages when searching for a plumber. Internet directories, therefore, remain a separate market. Despite the fact that Yell has cut prices by more than twice the regulatory requirement and increased customers by a half, it looks doomed to remain in regulatory thrall and will be valued accordingly.