Michael Harrison's Outlook: C&W's Lapthorne makes the hedge funds an ultimatum they can't refuse

Collins Stewart on the block; Sky prepares its next great land grab; Trinity minus the 'Mirror'

The ultimatum from C&W's chairman Richard Lapthorne that the offer will not be increased in value "under any circumstances" puts the funds in an awkward position. Energis is a company with a lot of debt but comparatively little equity so it is not a simple matter of giving all investors the same price.

Mr Lapthorne is offering the hedge funds 80 per cent of the face value of the junior debt they hold, plus an equity kicker, which is more than they bought in for but less than the banks which hold the senior debt are being offered. They are being paid off at par.

The argument being advanced by the hedge funds, led by Centaurus Capital, is not a very sophisticated one. They point to C&W's £1bn cash pile and say why can't C&W give them what the senior creditors are being offered. Anything else is unfair.

Quite how fairness enters the equation is not clear when the hedge funds knew the risk they were taking in the first place by buying a blocking stake in Energis. The company is worth more to C&W than almost anyone else and is certainly offering a better price than a flotation would produce. Mr Lapthorne's ultimatum is as unequivocal as they come and yet the hedge funds still think there is room to negotiate a better deal over the weekend. Perhaps they don't know him.

Collins Stewart on the block

Terry Smith is rarely far from the centre of the action. He once headbutted a fund manager at a black-tie dinner and is attempting to do the same thing, metaphorically at least, to the editor of the Financial Times through the libel courts. Now he is the subject of the action, the broking firm that he heads, Collins Stewart Tullet, having received a number of approaches etc etc.

Collins Stewart's speciality, inter-dealer broking, remains one of the more esoteric waters of the financial markets, which is why the small pool of players which inhabit it engage in aggressive poaching of each other's staff. But it is an increasingly important one and thanks to a couple of neatly timed takeover deals since he led the buyout of Collins Stewart from Singer & Friedlander five years ago, Mr Smith has built up a business which at last night's closing price was worth £1.4bn.

The small number of players means that a takeover approach from a direct rival is likely to run into competition problems quite quickly. That might make it difficult for the two obvious suspects - Michael Spencer's Icap and Cantor Fitzgerald to swing a deal past the regulators.

That would suggest Collins Stewart is being eyed up by one of the ubiquitous private equity firms or a big trade buyer keen on adding expertise in complex derivatives trading to its stable. Wherever the bid approaches originate, Mr Smith is sitting pretty. He holds a 4 per cent stake worth £58m at last night's close. Not bad for a man who grew up with nothing and has lost his job in the City twice - first for issuing a sell note on his own employer, Barclays, and then embarrassing the clients of his next employer, UBS, by highlighting the way they inflated their profits.Would he retire quietly to count his money? Somehow, it does not seem likely.

Sky prepares its next great land grab

Hurry, hurry! Get your Sky+ box half price. While stocks last. Alternatively, you could wait a little longer and get it for free. BSkyB's outside shareholders probably won't like it but that has not stopped James Murdoch before, and anyway it would be a sure-fire way of getting to 8 million subscribers by the end of this year and 10 million well before the target date of 2010.

Sky's latest box of tricks is only a glorified video recorder, but it has proved a brilliant tool for extending its reach into more homes. It should cost £200 but at the moment Sky is advertising them for £99 to anyone who subscribes for a digital package. In the last quarter, one third of those signing up for Sky+ were new subscribers as opposed to existing customers upgrading.

There are better packages than Sky+, which, for all its storage capacity, still relies on the viewer remembering to set the recorder in advance. There is Home Choice, for instance, which offers video-on-demand down BT lines. The cable operators are beginning to experiment with the same product, offering video-on-demand in addition to the triple package of phone, TV and broadband. But no one else can match Sky's marketing clout.

The cost of giving away Sky+ boxes could be as much as £1bn over three years. Enough to depress the share price a while longer. That will not bother Rupert Murdoch's News Corp, whose stake is creeping towards 40 per cent, provided it cuts the ground from underneath the cable companies as they dawdle towards a merger.

Sky's last two great land grabs did not come cheap either. The first set-top box giveaway six years ago and the free upgrade from analogue to digital both cost about £1bn. But the strategy has kept satellite streets ahead of the competition.

Jam tomorrow is not everyone's favourite dish but as long as it continues to go down well with the controlling shareholder, Murdoch Jnr will continue to serve it up.

Trinity minus the 'Mirror'

Mirror, Mirror on the wall, who would pay us the most of all? The speculation that the Daily Mirror and its sister Sunday titles are up for sale will not go away. The latest rumour, emphatically denied by the parent company Trinity Mirror, is that the chairman Sir Victor Blank has decided that shareholder value is best served by launching an auction.

Why else, so the theory goes, would news of an abortive bid from the previously unheard of conference organiser Marcus Evans have leaked out two months ago. The initial suspicion was that it was designed to distract attention from the indifferent trading statement Trinity Mirror's chief executive, Sly Bailey, announced later that day. But was it really a kite being flown by the company to draw other potential bidders into the open? Mr Evans was reputedly prepared to pay £800m but Trinity Mirror values the titles at more than that, based on the £680m the Barclay brothers paid for the Telegraph Group, which makes only half the money. In order to get shareholder support for a sale of the Mirror, any deal would need to be earnings enhancing.

The argument for selling off the national titles is that it would create a pure regional newspaper business, similar to Johnston Press, which would then trade on a much higher stock-market rating than Trinity Mirror does.

The argument against a break-up of the business is that Trinity Mirror has now become an integrated publishing company with print, IT and back-up functions shared across the entire group. The national titles are also at the heart of Ms Bailey's strategy of generating increased online advertising revenues from the databases held by the group. Selling off the Mirror would undermine that strategy.

That may not deter potential suitors from continuing to take a look in the Mirror, whatever the company's public position is.

m.harrison@independent.co.uk

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