Michael Harrison's Outlook: Dan Dare and the mission to save Eurotunnel

Man Utd, take three; Sainsbury's defence
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The Independent Online

The rescue plan for the Channel Tunnel is code-named "Project Dare". It might better be described as the project which dare not speak its name because it is painfully short on detail but long on management jibberish such as "systematic need challenging" and "double reorientation of commercial policy", whatever that means in English.

To avoid offending the unions, Eurotunnel has not spelt out how many job losses Project Dare will entail. And to avoid frightening away customers, it carefully skirts around the central issue of how much it will cost in future to use the Channel Tunnel.

Cutting through the waffle, the two key aims of the project appear to be, first, a dramatic reduction in capacity and, second, a £70m increase in profit margins. Making more money whilst operating fewer services sounds like a recipe for higher fares. But in the kind of price war Eurotunnel is facing, the golden rule must surely be not to raise tariffs, even if they can't be lowered to any great extent.

Next summer, SpeedFerries, the latest entrant to the market between Dover and Calais, is offering £50 returns at peak times and it threatens to kill Eurotunnel.

Eurotunnel's response, to ration capacity on its passenger and freight shuttles, looks like an odd strategy in any case. The Channel Tunnel cost £10bn to build. That is sunk capital and the best way to make a return should be to make maximum use of capacity by offering minimum prices. If Eurotunnel can't make use of the spare capacity, perhaps it should offer it to someone else who can.

As it is, the new French management at Eurotunnel, who threw out the English crew in April, seems to believe it can dictate to the market, rather than the other way around. To ensure their lorries are at the front of the queue, freight operators will have to sign up in advance for a fixed number of crossings a year and pay for them, instead of using the tunnel as insurance against rough seas.

Project Dare has even less to say about how Eurotunnel will cope with the ending in two years' time of the minimum usage charge which Eurostar pays to operate services to Paris and Brussels. The extra £70m the plan envisages will fill the hole left by the termination of the agreement. After that, something else will be "developed in association with our partners", is all Eurotunnel can say.

The elephant in the corner, of course, is the £6.4bn of debt that the tunnel carries and, on that, Eurotunnel is entirely silent, other than to note with masterful understatement that "the financial structure of the group remains fragile". The clock is ticking and there is now only a little more than a year left until Eurotunnel has to start servicing its debts with real cash and not complicated bits of paper. The clock strikes 12 a year after that when Eurotunnel must start repaying its junior debt. Can Project Dare deliver? Dan Dare has a better chance of saving the tunnel.

Man Utd, take three

My Colleague Jeremy Warner stirred up a veritable hornets' nest with his castigation earlier this week of the Manchester United board over its decision to reject Malcolm Glazer's takeover approach. So I return to the subject with some trepidation and also with a declaration of interest: as a Liverpool fan, I have more reason than most to wish Manchester United a slow and horrible death.

Having said that, the stance adopted by the board strikes me as having been correct and not a little courageous. The idea that the only fiduciary duty owed by the directors of a public company is to extract the best price for shareholders is an American import. But it is also wrong.

Directors have a common law duty to act in good faith in the best interests of their company and a statutory duty under the Companies Act to take into account the best interests of their employees.

In simple terms, that means money does not always talk because the bidder offering the highest price might not be the most appropriate one for the company in its widest sense. Admittedly, in 99 per cent of cases what is in the best interests of shareholders will also be in the best interests of the company. But that is not always so. Consider a takeover bid which is so highly debt financed and so reliant on the continued success of the company being acquired that there is a real risk that it will collapse under the burden its new owners have taken on.

Consider then what impact that would have, not just on the business and its direct employees, but on the surrounding community and all those businesses which act as suppliers. Consider, if you will, the present plight of Leeds United, which has fallen into just such a pit of debt.

In those circumstances, would it really be sufficient for the former directors of the business to shrug their shoulders, move on and say at least they got a good price for the shareholders? To put it another way, would they have been derelict in their duties?

But the dangers inherent in leveraged takeovers are not limited to sport: the debt-financed acquisition of the Somerfield supermarket chain a decade ago very nearly led to its demise and the more recent decision of the Marks & Spencers board to reject Philip Green's takeover bid probably had something to do with its highly-leveraged nature.

Even where a board of directors can be shown to have achieved the maximum value for present shareholders by selling out, it is not clear that this is a good argument for taking the money and running. For one thing, those self-same shareholders may very well own shares in the company doing the acquiring and it a well-established fact that the majority of takeovers destroy value rather than create it.

In the case of Manchester United, there were also several categories of shareholders to take into account - not only those City institutions who would have bitten Malcolm Glazer's hand off for 300p a share, but also the shareholder fan base who would probably have been left as disaffected minority shareholders had the offer been recommended and gone through.

Most of United's directors would have been surplus to requirements had they invited the Glazers through the door. All of them will certainly lose their jobs now should he successfully mount a hostile bid. It is rather to their credit therefore that they told the Florida billionaire where to stick his debt-financed bid.

As to my esteemed colleague's other contention - that the destruction of Manchester United might actually be good for English soccer - well, I leave that in the hands of the one true football team. It can be found 30 miles away down the East Lancs Road.

Sainsbury's defence

It is the bid defence team that is being assembled before an offer has even landed. Such is the froth of speculation about a tilt at J Sainsbury that the beleaguered supermarket chain has decided to bring Morgan Stanley on board to repel those phantom bidders.

This is the bank which successfully defended Marks & Spencer against Philip Green. The first plank of the bid defence at Baker Street was to fire the chief executive and draft in a new chairman. That tactic is not open to Sainsbury's as it has only just hired its new top team in the shape of Justin King and Philip Hampton.

As yet, there is no bid but you can perm any combination from Permira and Target to the Asda boys, Allan and Archie, and George Magan. If a bid does land, it will require the backing of the Sainsbury's family and perhaps the green light from yet another competition inquiry. That makes success a tall order. But the appointment of Morgan Stanley and the prospect of a dire Christmas trading period for Sainsbury's shortens the odds on someone having a go.

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