Michael Harrison's Outlook: National Grid avoids a nasty shock with clean sale of wireless business to Macquarie

Once upon a time, a bright spark at the National Grid came up with a good idea. Why not wrap a piece of copper cable around the earth wire of the country's high voltage electricity transmission system and create a telecoms network? They did and they called it Energis. Six years later, the Grid floated part of the business for £2bn - not a bad return on a £500m investment. Unfortunately, the dotcom bubble burst before Grid could exit completely and its remaining Energis stake was rendered virtually worthless.

It has learnt from that experience. So when Grid decided last November to offload another of the little sidelines it had built up - a business specialising in hosting broadcast transmission equipment and mobile masts - no one seriously expected anything other than a clean sale.

The Grid achieved that yesterday, selling its UK wireless business to the ubiquitous Macquarie bank for £2.5bn, and in the process doubling its money. The deal is unconditional, which means that Grid gets the proceeds even if the competition authorities become twitchy.

Regulatory intervention seems unlikely in any event. Although Macquarie already owns the country's only other broadcast transmission business, Arqiva, the two companies are regulated as a duopoly anyway. As their respective networks of transmission towers do not overlap geographically, there is no obvious competition issue.

Indeed, as the migration from analogue to digital transmission takes place, the Government might even be glad that the infrastructure is owned by one company that can achieve bigger economies of scale.

Grid shareholders will receive their pay-off in the shape of £1.8bn of the proceeds being channelled into the company's share buy-back programme.

Shorn of another distraction, investors will be looking even harder at how the Grid's new chief executive, Steve Holliday, plans to exploit its core UK and US gas and electricity transmission businesses. The company is investing £9bn in its UK networks over the next five years. But that is its only scope for domestic growth, given the restrictions it would face in buying any other gas or electricity businesses. It is not the same story in the US, where Grid has splashed out £16bn since 2000 on five separate takeover deals. The result is a company with an enterprise value of about £40bn which is now bigger over there than over here. Big enough, in fact, to be one of the few UK utilities capable of taking the fight to the opposition, rather than running up the white flag at the first sight of a continental bidder.

Germany's E.ON may have a spare €30bn to spend having been foiled in its attempts to buy Spain's Endesa. But if it is looking to embark on another UK shopping trip, then Scottish & Southern Energy remains by far the most obvious takeover target.

Railways getting there - slowly

The train now departing from platform five is... travelling so fast you may have mistaken it for a jet aeroplane. Or perhaps a Formula One racing car. Trust the French to upstage Network Rail's Big Day. At the very same moment as it was unveiling its grand plan to ease rail congestion, a TGV was hurtling down the line from Paris to Strasbourg at an ear-splitting 357mph to claim a new world speed record.

The UK rail network's recovery from its disastrous flirtation with privatisation is, by contrast, proceeding at a much more stately pace. This year will be the first in well over a decade that more money has been spent expanding the network than repairing it. But the £1.2bn that Network Rail will invest on a new platform here and a bit of double track there needs to be put into perspective. In China, they are planning to build 7,500 miles of new high-speed lines at a cost of $300bn. Here, we will be lucky if the ironically-named Thameslink 2000 project sees the light of day before 2015.

Perhaps Network Rail has no option but to cut its cloth to suit its budget. Many of the 900 or so enhancement schemes contained in its latest business plan appear to be a rehashing of existing spending proposals. Certainly they are not going to bag any world records.

These schemes may begin to tackle the overcrowding that currently exists. What is less clear is whether they will be remotely sufficient to keep pace with the projected growth in rail travel. Over the next five years, the number of passengers using the south-east network is forecast to grow by at least 30 per cent and some train operators believe (or is it fear?) that the increase will be even greater than that. Virgin expects to add 30 per cent more capacity on the West Coast Mainline next year alone.

Unlike France, or even the Netherlands, there is no proper consensus here on who should pay to meet this enormous growth in demand. At present the taxpayer funds 60 per cent of the cost of the railways, and passengers the rest. The Government would like to see that ratio reversed and has set about extracting as much money from the train operators (for which read passengers) as it possibly can by demanding ever more racy premium payments to run franchises.

The odd financial train crash aside, the policy seems to be working. Stagecoach paid an eye-watering £1.2bn to hang on to its South West Trains franchise. To recoup that, it has taken the unprecedented step of raising unregulated off-peak fares by as much as 20 per cent when railway convention says that it should be cutting the cost of such travel to attract passengers. If SWT's price rises stick, it will say something remarkable about the demand for rail services.

For all the big headline numbers yesterday, Network Rail's latest business plan covering the years 2007-09 is really an exercise in marking time. We will have to wait until the summer for the Government's snappily entitled Statement of Funds Available or Sofa to know what type of rail network it wants over the following five years and how it should be paid for. As things stand, there is a £5bn gap between what Network Rail would like to spend and the minimum the Rail Regulator thinks it can get away with if it is run more efficiently. In order to squeeze on to the Sofa, the Fat Controller may need to lose a little weight.

Waiting for the puff of smoke from ICI

Not for the first time, ICI shares topped the FTSE 100 leader board yesterday on yet more bid speculation. The rumour this time is of a possible approach from Dow Chemical of the US. Previously, the market's favourite candidate to take out ICI was Akzo Nobel of the Netherlands, although private equity interest has also been mooted. At 600p a share, ICI would cost a little over £7bn. Add on debt and a bidder would end up paying a bit north of £8bn.

What was perhaps telling about yesterday's share price move was that it came late in the day and was accompanied by heavy trading with some four times the usual volume of ICI stock shifted. Where there's smoke, a fire generally breaks out sooner or later. Has the market simply got it wrong? Or is ICI about to provide further confirmation of the Financial Services Authority's suspicion that insider dealing is once more rampant in the London market?

m.harrison@independent.co.uk