Michael Harrison's Outlook: The slowdown in the IPO market - a blip or a harbinger of something more worrying?

E.ON seeks to reign in Spain; Disaster of a rail crash foretold; Ryanair's O'Leary hedges his bets
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The Independent Online

Another flotation bites the dust - this time the initial public offering of shares in the business- travel firm Hogg Robinson. A lack of nerve on the part of its private-equity owner Permira? A lack of interest on the part of the institutions? Or something more deep-rooted and disturbing - the fear of an impending market downturn?

On the face of it, Hogg Robinson's timing looks odd since it was only two weeks ago that it decided to press ahead with the IPO, albeit setting a price range that went from 140p all the way up to 220p. What has happened since then? Wall Street has certainly got more jittery as the fear of a housing-led US slowdown has gripped the market. The assessment of the US economy from the World Economic Forum certainly does little to calm nerves. Factor in geopolitical uncertainty and nervousness that the recent fall in oil prices points to an underlying fear of US recession, and it is easy to see why a company reliant on transatlantic business travel should get the wobbles.

But Hogg Robinson is only the latest in a long line of abandoned IPOs and the thicker they come, the more they add to the uncertainty, creating a momentum of their own. Already in recent weeks the cinema owner Cineworld, the Russian discount retailer Kopeika and a string of property firms have delayed their flotations. And what has become of Dubai Port World's plans to refloat a chunk of P&O on the London market? Complete radio silence.

Perhaps, the London market is just disappointed that, after a lull in IPO activity over the summer, the expected autumn pick-up has failed to materialise. But in markets which trade on sentiment, these things have a habit of becoming self- fulfilling.

E.ON seeks to reign in Spain

The battle for control of Spain's biggest energy company Endesa has had everything - naked protectionism, political double-dealing, cross-border conflict, legal intervention by Brussels and a white knight. Now E.ON of Germany, which has been stalking Endesa since February, has raised its offer by almost 40 per cent in one fell swoop.

E.ON has certainly got deep enough pockets to outbid almost anybody. But the question remains as to whether the Spanish are prepared to cede control of this strategic part of their energy industry.

The Spanish began a year ago by trying to make Endesa bid-proof through an unwanted marriage with Spain's monopoly gas supplier Gas Natural. Spain's competition authority objected to the deal, but its energy regulator cynically waved the merger through with the Government's blessing.

When E.ON decided to break up the party five months later with a rival bid, the energy regulator sought to frustrate the Germans by imposing no fewer than 18 conditions on the takeover - conditions which Brussels yesterday ruled illegal under EU law.

Just as the ink was drying on the formal ruling from Brussels, the Spanish tried another tactic to thwart E.ON. Up popped Acciona, the Spanish renewable energy and construction company, which bought a 10 per cent stake in Endesa and said it was considering raising its shareholding to 24.9 per cent, just below the level at which it would be forced to make a full offer.

The sound of wagons being circle in Madrid has evidently not deterred E.ON which seems intent on expanding its energy empire further into Europe whatever obstacles are laid in its path. Let us not dwell on the fact that it too is protected in its home market in a way that makes a foreign takeover of Germany's energy industry all but impossible.

This is now a contest between German financial muscle and Spanish patriotism. The raw power of the markets versus the will of the Spanish establishment to repel an unwanted predator.

This fascinating struggle has already entertained us for 12 months. It has further to run yet.

Disaster of a rail crash foretold

The franchise to run the East Coast Mainline, Britain's flagship rail route, is no longer sustainable. So says Christopher Garnett, the former chief executive of GNER. Mr Garnett should know because he is the one who negotiated the new 10-year deal in the first place. Mr Garnett has now been shunted into retirement but his former bosses at Sea Containers, the owners of GNER, remain in denial. They blame everyone and everything but themselves for the failure of the franchise to hit its targets - soaring electricity prices, the July 7 bombers, the Rail Regulator, the sluggish economy, even competition from an as yet non-existent rival operator, Grand Central.

The fact is GNER looked in trouble from the moment it agreed to pay the Government the eye-watering sum of £1.3bn for the right to retain the franchise.

This is not a case of being wise after the event. The folly of GNER's extravagant bid was pointed out at the time - not least by rival bidders who could not understand why the franchise was worth £300m more than anyone else was prepared to offer.

Still, it is an ill wind that blows no one any good. GNER's high-risk bid has had the effect of raising the bar for everyone else with the result that franchises are now being bid for and awarded on ever slimmer margins which leave precious little room for error.

Mr Garnett predicts a string of spectacular failures that will result in the franchises ending up back in the hands of the Government - a sort of re-nationalisation by accident. Can Mr Garnett have meant this to be the result? If so, Bob Crow could not have done a better job.

Ryanair's O'Leary hedges his bets

Another day and another blizzard of Ryanair press releases detailing Michael O'Leary's latest wheezes for lowering the cost of flying. Everything from tray tables that carry advertising to his offer to build a new terminal at Dublin airport for half-price. Almost obscured by this information overload is one little nugget: Ryanair has broken with its usual practice by hedging its fuel requirements for the first three months of next year. At $73 a barrel - some $12 above the current market price - that does not leave much scope for upside in the shares.

Mr O'Leary took a gamble this year and didn't bother to hedge, betting on a fall in the oil price. As a result, Ryanair has ended up with some of the highest fuel costs in the industry. With the price now back at $61, he may well want to lock in more certainty for next year.

m.harrison@independent.co.uk

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