Monti investigation

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The only person to have emerged with any credit from the wreckage of the Railtrack derailing is Steve Marshall, its chief executive. The moment he realised what was going on, he did the right thing by handing in his notice and speaking out against the "shoddy and unacceptable" way in which the Government was treating the company and its shareholders. For that, he's gained much applause in the City. His reward is that he's unlikely to be short of job offers when the time arrives for him to leave in six months time.

Lamentably, the same cannot be said of his chairman John Robinson, who initially at least put his own and the Government's interests before those of his shareholders. With the prospect of a gong looming, he agreed to head the Government's ridiculous "not for profit trust", the "guaranteed" vehicle Stephen Byers, the Transport Secretary, proposes should take over the running of the railways. Mr Robinson would no doubt argue that his decision to throw in his lot with Mr Byers was motivated by the need to ensure some kind of continuity in management, but that's not the way it looks from the outside.

It took a furious City and financial press to remind him of his duties and he's been back peddling ever since. Too late. Mr Robinson impressed the rail industry with his cut to the chase approach during his brief period as chairman, but he cannot now credibly represent the shareholders given his failure of judgement last weekend, and in any case, it is Mr Marshall who's doing all the talking these days.

Meanwhile, Mr Byers continues unashamedly to brass neck it out. City Index was yesterday quoting very short odds indeed on him getting the push in the next month, but actually this doesn't seem hugely likely. He continues to enjoy the full support of the Prime Minister, Tony Blair, and it is easy to forget that although the policy may have been badly mishandled, what he's doing is a fundamentally popular move. But then so is hanging and flogging but that doesn't make it right. That Mr Byers has proved himself financially illiterate during the course of this weeks contortions is not going to bother your average bar room bore.

He was at it again on the lunch time news yesterday, insisting the interests of the travelling public had to come before those of shareholders. It is hard to argue that Railtrack served either of these groups well, but the idea that customers and shareholders are for ever bound to be in face to face conflict is out of date nonsense. The Government is hoping for railway investment of £60bn over the next ten years, of which the private sector is expected to contribute about a half. What Mr Byers has just done is increase the cost of that capital to the public purse and the paying customer very significantly. You cannot ride rough shod over investors and lenders one minute and then come cap in hand to them for more funds the next and expect them to be pleased to see you.

No wonder Gordon Brown, the Chancellor, is hopping mad about what's happened. The way things are going, he might end up having to renationalise the railways afterall, thereby taking their cost directly onto his own books and in the process destroying all his hard work on restoring the public finances to health. Worse, the debacle threatens more generally to undermine the public private partnership initiative, which in turn might kill off large parts of the Government's plans for investment in public services.

The chief problem with the PPP has always been that it is more expensive for private companies to borrow than the public sector. Bringing in outside financiers keeps the borrowings off the Government's books, even if it often looks like no more than window dressing, but it doesn't necessarily make the service cheaper. The expectation is that the efficiency advantages of the private sector will more than compensate, but even if this were true, the private sector is going to have to be than much more efficient still post the Railtrack collapse to make up the difference.

As we said yesterday, the Railtrack affair still has the potential to end very badly indeed for the Government. It has also shown the Government's relationship with the private sector to he a hopeless mass of contradictions and muddled thinking.

Sir Martin Sorrell, chief executive of the advertising group, WPP, has been forced to fall back on a little used clause in the takeover code in an attempt to wriggle out of his £432m takeover bid for Tempus Group. The clause allows the bidder to withdraw if there has been a "material adverse change" in the target's circumstances. Sir Martin argues that the events of September 11 amount to just such a change. It seems unlikely he'll succeed.

There is no precedent for allowing a bid to be abandoned in this way and the Takeover Panel will need a lot of convincing that it ought to set one. What's more, Sir Martin waded into the market and bought more shares in Tempus after the terrorist atrocities in America, making it hard to that the event was as bad for him as he is now claiming. In the last few weeks, analysts have reduced their profit forecasts for both WPP and Tempus – in the latter's case from about £21m for the full year to £18m – but there have been no profit warnings from either of these companies, and Rupert Murdoch's quite upbeat remarks about prospects for the advertising market at the News Corp annual general meeting this week in Adelaide, make the force majeure argument difficult to sustain.

However, the real killer from the Panel's point of view is that but for Sir Martin's spoiler bid for Tempus, its shareholders would by now be sitting on 545p a share in cash from Havas. When Sir Martin entered the fray, it gave Havas the opportunity to lapse its bid. Without the alternative of Sir Martin, Havas would not have been able to do that. He has, in essence, deprived shareholders of a perfectly good bid, and although this has nothing to do with the material adverse change argument, it is bound to weigh heavily on the Panel's deliberations.

Sir Martin is no fool, and he knows as well as any that his appeal to the Panel is a long shot. The trouble is he's lumbered with a bid which is obviously overpriced in present circumstances, so he owes it to his shareholders at least to try. When he launched the offer, his gamble was that Havas would outbid him, but then came 11 September and he's been left holding the baby. The sums involved are not so large relative to WPP as to cost Sir Martin his job and, in any case, provided he can find a way of working with Tempus's Chris Ingram, the deal may over time still prove to be a good one. It's a cock-up, there's no doubt about it, but given Sir Martin's achievement in rebuilding WPP over the last eight years, it is one the City won't want to punish.

Mario Monti, the European Competition Commissioner, is closing in on the way European stock markets lock out competition by requiring that clearing and settlement of transactions takes place through their own linked systems. It's about time. In London, trading is separated from settlement, which puts the London Stock Exchange at a competitive disadvantage to Continental rivals. London has much to gain in terms of international share trading if separation is enforced on the Continent too.

j.warner@independent.co.uk

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