Michael Harrison's Outlook: Huawei the lads, as they may (or may not) get used to saying at Marconi one day

Leighton waits for regulator to deliver; Keelan: deal maker and deal breaker
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The Independent Online

Such linguistic abominations are commonplace today among companies that cannot quite bring themselves to call a spade a spade but in Marconi's case, the caveat is an important one. The takeover approach comes from the Chinese company Huawei Technologies and, as the MG Rover affair demonstrated, getting the Chinese to buy as opposed to merely talk are two different things.

Marconi's days as an independent company have been numbered since May when it was frozen out of a £10bn equipment order from its biggest customer British Telecom. It more or less hoisted the "for sale" sign then, and it was clear that Huawei, one of the suppliers that benefited at its expense, would be among the potential bidders. The two companies already sell each other's equipment.

Size is important in the global telecoms equipment market and the BT announcement shrank Marconi by a half. The chairman John Devaney says it has cash in the bank so it can afford to take its time.

Perhaps that is just as well. MG Rover's two Chinese suitors kept the talks going until MG Rover had run out of money and then came back with offers to buy the company out of administration at a fraction of the price a full-blown merger would have cost.

Marconi has already been saved from a near-death experience once and yesterday the shares perked up 15 per cent on the prospect of a Huawei takeover valuing the business at more than £600m. Those hoping for a deal should be prepared for a long wait and a disappointing price, if such a business combination ultimately takes place.

Leighton waits for regulator to deliver

Only 21 days left to post back comments on the proposed price control regime for Royal Mail and the atmosphere is becoming febrile. The regulator, Postcomm, wants to limit the increase in the price of a first-class stamp to 4p over the next four years. Royal Mail wants permission to increase it from the present level of 30p to as much as 48p.

In order to keep prices down, Postcomm has suggested that various categories of business mail, which help subsidise the cost of a first-class stamp, be retained within the basket of regulated products. Royal Mail wants them taken out so that it can meet the competition that is heading its way when the UK postal market is liberalised entirely from next January.

The posties say that unless they are allowed to raise prices by a reasonable amount (though how a 60 per cent increase over four years fits this category is unclear) then they will have to shed 40,000 jobs. The regulator replies that Royal Mail's own strategic plan already envisages 30,000 job cuts between now and 2011. It reckons that a 3 per cent improvement in annual efficiency would save Royal Mail £700m a year by the end of the price control - more than enough to limit the rise in first class postage to 4p.

Royal Mail says the 30,000 figure was a finger in the air job since it is impossible to know how many jobs it may have to shed when it doesn't yet know what it will be allowed to charge, what the current government review of the organisation will conclude and what the impact of competition will be. Don't get the chairman Allan Leighton even started on Royal Mail's £4.5bn pension fund deficit. The trustees want it plugged over 12 years, the regulator's consultants have suggested a 20-year timescale.

One thing that can be said with certainty, however, is that such jousting between regulated company and regulator is par for the course in the run-up to the imposition of a new price control. As always there is a trade-off. And in the case of Royal Mail, the key to its fate rests with the 100 per cent shareholder, HMG.

Mr Leighton is angling for an employee buyout which would put half the shares in the hands of Royal Mail's staff accompanied by a root and branch overhaul of its balance sheet which transferred its historic pension liabilities to the state and injected fresh cash. In return, would he settle for a price control that was harsher than the one Royal Mail is currently demanding? You bet he would. So might the Government if it kept staff, customers and the competition happy all at the same time.

Keelan: deal maker and deal breaker

Brian Keelan, who died last Friday aged 50, was one of a new breed of corporate financiers who grabbed the City by the scruff of its neck and dragged it into the new millennium. Along the way, he made enemies among some of the patrician old guard who resented his style and his tactics. He also had his share of scrapes with the Takeover Panel but rightly became known as one of the most innovative and formidable investment bankers of recent years.

He is best remembered for his defence of the Co-operative Wholesale Society against the hostile bid from Andrew Regan. The defence did not rely upon the kind of clever deal making in which Mr Keelan came to specialise at Swiss Bank Corporation but on old-fashioned sleuthing.

The bid was dead in the water from the moment that private detectives hired by SBC photographed two Co-op employees passing confidential internal documents to the Reagan camp in a hotel car park. The collapse of the deal also led to the demise of Hambros, the blue-blooded investment bank which had been advising Mr Regan.

No respector of reputations, Mr Keelan had clashed spectacularly with SG Warburg two years earlier when SBC advised Trafalgar House on its £1.2bn bid for Northern Electric, the first of the privatised energy companies to face a hostile takeover.

Aware that the bid would electrify share prices right across the sector, SBC took out contracts for differences - a way of benefiting from the rise in a stock price without actually owning the shares - not only in the target company but several other electricity suppliers as well. It was as close as you could get to legalised insider dealing.

SBC defended the move on the grounds that it was a legitimate way of allowing Trafalgar House to defray its bid costs. Warburgs went as far as to complain to the Bank of England about the tactics of the Swiss upstart. The furore eventually resulted in the Panel tightening the rules so that CFD positions became disclosable. But Mr Keelan had the last laugh when SBC subsequently bought Warburgs to help form what is known today as UBS.

Mr Keelan left UBS four years ago to become group strategy director at the Hong Kong-based conglomerate Jardine Matheson, where he had been tipped one day for the top job.

As well as sailing close to the wind, he enjoyed the real thing and died after a day spent on his boat while holidaying in the UK. He will be missed by friends and foes alike.

m.harrison@independent.co.uk

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