Michael Harrison's Outlook: Rover takeover looks more sour than sweet

Planestation flys too close to the sun; Patientline heads for intensive care unit
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The Independent Online

Chinese takeaways have a habit of disappointing and so it is likely to prove with Nanjing Automotive Corporation's purchase of MG Rover. The promise of jobs that Nanjing and the rival Chinese suitor, Shanghi Automotive, dangled before the administrators always looked more like political window-dressing to make their bids palatable in the West Midlands rather than generate substantial employment.

Nanjing says it will create up to 2,000 jobs in the UK by producing 80,000 MG sports cars a year. But the economics simply do not stack up. If the deal it has accepted from PricewaterhouseCoopers is the same one offered to the other bidders, then Nanjing has six months to lift and shift the production lines from Longbridge to China before the lease runs out. This explains why it has hinted heavily that UK production will take place elsewhere.

Global demand for sports cars is only 750,000 a year and yet, based on Nanjing's figures, it plans to capture 10 per cent of the market from a standing start. So its production plans look like pie in the sky and so do its job promises. Even if output from a greenfield site were to reach 80,000, it is hard to see the plant supporting 2,000 jobs when Toyota and Nissan are capable of producing three times that number of cars with a workforce less than twice the size.

The administrators have yet to come up with a plausible explanation as to why they rushed into a deal with Nanjing having previously indicated that they had until September either to find a buyer for Rover or begin dismantling Longbridge and selling it for scrap metal. Nanjing may lay claim to being China's oldest car company but it is a minnow, producing just 30,000 passenger cars last year at a loss of 400m yuan.

Shanghai, furious last Friday at having lost out to Nanjing in the Rover auction, has calmed down sufficiently to realise there is no point in pursuing its grievances against the PwC through the courts. However, having already paid £67m for the ownership of the Rover 25, 75 and the K-series engine, it is certain to want to enforce its intellectual property rights should Nanjing want to exploit them.

Again, it should steer clear of the UK courts. Just as most of Rover is destined to end up in China, so this is a problem made in China. Ultimately, both Shanghai and Nanjing are state-owned and it is for the Chinese government to clear up its own mess.

Planestation flys too close to the sun

One of the more colourful companies to have graced the stock market in recent years looks like it is about to crash and burn, taking yet another no-frills airline with it. Shares in Planestation, the owner of EUJet, were grounded yesterday after the bankers withdrew their support and the omens do not look good, either for the shareholders or the passengers who could find themselves stranded abroad.

Those with a longer memory may recall that Planestation was once called Wiggins Group, but whatever name it went by there was always some weird and wonderful scheme on the drawing board. First it was a plan to build the world's tallest skyscraper on the former site of the Liverpool Garden Festival. Then it was a proposal to develop Britain's biggest dog racing track in east London. Both were pipe dreams of its long standing chief executive Oliver Iny. His latest one was to turn Manston Airport (grandly re-named Kent International) into a no-frills gateway to Europe, even though hardly anyone knew where it was and the site lacked a proper perimeter fence until a few months ago. Fifteen months ago, Planestation's biggest shareholder Prudential and a couple of Swiss funds decided to eject Mr Iny as the price for supporting a £46m recapitalisation of the business.

But his successor, Martin May, stayed true to the Manston project, insisting that there were 1.5 million people who lived near enough to take a flight.

Planestation persuaded EUJet, the brainchild of a former Ryanair chief executive, to launch services from Manston and as a sign of its faith bought a minority stake in the budget airline. Then, in a novel piece of vertical integration it bought EUJet outright, paying mainly in its own shares.

Since then, Planestation has raised a further £30m from shareholders with the help of Evolution Securities and put much of its remaining property interests in hock in a desperate attempt to keep the airline aloft. Alas, EUJet failed to meet its passenger forecasts and Bank of Scotland has finally lost patience.

The shares were suspended at 5.62p having once traded at more than £6. For Prudential, the write-off will hardly register on the radar screen. But for Planestation's 40,000 private shareholders, many of them residents of Kent who bought in as a sign of faith in Manston, it is a hard lesson in why not to put heart before head.

Patientline heads for intensive care unit

Hello, is that Derek? Derek Lewis of Patientline? I'm from Ofcom, hope you don't mind me calling. Sorry to hear you've been admitted to hospital by the way. We do understand what a terrible shock to the system these regulatory investigations can be. Never mind, chin up, it'll only take till Christmas.

I'm paying 49p a minute for this 'phone call so I'll get straight to the point. Well, that is the point really. We think you might be over-charging your customers ever so slightly and since half of them are elderly patients in acute wards, they're about as captive a market as you can get. I should stress that we're not accusing you of profiteering. Chance would be a fine thing when you've lost money ever year since the company was formed. Not surprising, eh, when it costs £1m a throw to equip a hospital with those fancy PC-based systems so patients don't have to leave their bed to call a relative or watch their favourite telly progamme?

Don't get me wrong. We at Ofcom believe in patient power as much as anyone but everything has its price and yours, how shall we put it, looks like it might be a little steep. What a shame mobiles are banned on the ward. What's that? Yes, I know that in other countries the hospital itself bears most or all of the costs of these systems whereas here the Government has stipulated it must be the user that picks up the bill. Gordon Brown is a generous fellow, as the settlement for the NHS proves, but his pockets are not that deep.

Incidentally, I notice that you craftily decided to get all the bad news out of the way in one go by combining a profit warning with the announcement of our investigation. Share price down nearly 40 per cent. Ouch!

Irritating, isn't it, when an NHS Trust gives you an exclusive, long-term contract but then decides to shut the ward just after you've finished kitting it out to save a bit of money. The prognosis, if I can put it like that, does not look good. Revenues per terminal down 5 per cent and if it gets any worse £4m lopped of this year's Ebitda (that's a financial, not a medical term, I take it). Hardly surprising that you've decided to stop fitting out any more UK hospitals until further notice. Money's tight, I guess.

Oh well, must be off. I really can't keep talking like this all day. Time is money as they say. Anyway, I think your bank's waiting to chat to you.... Derek? Derek???