Mulcahy the survivor changes course yet again

Woolworths; Regus barometer; GE/Honeywell
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The Independent Online

Few corporate statements carry such a transparently grudging undertone as the one issued yesterday by Sir Geoff Mulcahy, chief executive of Kingfisher, on announcing that the demerger of Woolworths is going to proceed as originally planned with Gerald Corbett at the helm.

"The senior management team that we have appointed for the new Woolworth Group, and which has the clear backing of the Kingfisher board, combines significant managerial, retailing and financial experience", Sir Geoff was forced to say, presumably through gritted teeth, one arm viciously twisted behind his back and with a gun held to his head.

Can this really be the same Sir Geoff that only a few days ago was conspiring to oust Mr Corbett, and have himself reinstalled as head of this troublesome outpost of empire? Well obviously yes, and to seasoned followers of this old warhorse of a chief executive, the apparent about face won't come as much of a surprise. Sir Geoff is one of Britain's great survivors, and when he saw that the City was beginning to mass against his latest piece of corporate manoeuvring, he must have realised it was time to beat a hasty retreat.

The breakup of Kingfisher has been as farcically pursued as it is long overdue. All along Sir Geoff has been a reluctant participant in his own plan, repeatedly changing tack, delaying and prevaricating in characteristic fashion. Which is hardly surprising. Woolworths was the original Kingfisher business and Sir Geoff dates right back to those origins in the mid-1980s. Emotionally, he doesn't want to let go. The idea that Sir Geoff's appointment of Mr Corbett to head the demerger was all along a Machiavellian plot to retain the business within the Kingfisher mothership has always seemed a little far fetched, but you can see why some people should find it believable.

Newly fired by Railtrack, Mr Corbett was bound to be a controversial choice, and when the Cullen report was released, accusing Railtrack under Mr Corbett of "lamentable failure and institutional paralysis", it seemed to give Sir Geoff all the ammunition he needed to force Mr Corbett's resignation, leaving the demerger in tatters and ensuring his own triumphant return.

Only it didn't work out that way. Perhaps surprisingly, Mr Corbett continues to command powerful support in the City, which was reflected in the backing he received both from Sir John Banham, the Kingfisher chairman, and the non executives he had recruited for the Kingfisher demerger, and there was a general backlash against Sir Geoff's dastardly manoeuvrings. Above all, investors want Kingfisher stripped of Woolies and they seem to have succeeded.

Shareholders have got what they wanted, Mr Corbett has got what he wanted, and Sir Geoff....well, who knows. The irony of this very public boardroom battle is that a debate which was initially meant to be about Gerald Corbett's suitability as chairman of a public company has ended up as one about Sir Geoff's acceptability as chief executive of the Kingfisher rump. In recent years, Kingfisher has been an investment disaster, and Sir Geoff seems to have been powerless to do anything about it. Yesterday's trade sale of Superdrug, bought as recently as 1997, to Kruidvat Beheer for a book loss of £55m makes the point as well as any. This may be one battle too many for corporate Britain's most accomplished survivor.

Regus barometer

Any company that claims to be recession proof should be treated with the utmost scepticism, and as if to prove the point all over again, along comes Regus with one of the most predictable profits warnings so far to have emerged from the present deluge of them.

At Spirent, the telecommunications equipment company, the claim to be immune to the business cycle relied on the assumption that telecoms companies would need Spirent's sophisticated testing equipment in ever increasing amounts regardless of how bust they became. Not so, it now appears. At Marconi and Cisco it was that business would continue to increase spending on hi-tech network equipment because they would fall behind competitively if they did not. Er, not true again.

With Regus, the contention was that as the business downturn begins to bite, businesses would increasingly swop their long lease accommodation for the more flexible space offered by Regus. This may always have been little more than IPO hype, but the reality has been rather the reverse. Not only does Regus turn out to have been as cyclical as everyone else, but indeed it seems to be a perfect barometer of what's going on in the wider economy.

The news yesterday was that the slowdown already apparent in the US is spreading to Britain and the rest of Europe, with occupancy rates in Regus's London offices plummeting from 90 per cent at the start of the year to 67 per cent now. Since Regus rents on long term leases to sub-let on a value added short term basis, this is plainly serious stuff. No wonder the shares tanked.

Regus was last month forced to abandon takeover talks with HQ Global, a US version of itself, because of fears of "flowback" - that the stock used to buy the company would be dumped by US investors on the UK market, undermining the share price. Mark Dixon, Regus's founder and chairman, needn't have worried. Yesterday's revenue warning did more undermining than any amount of US dumping could have done, with the shares now but a fraction of their 260p flotation price last October.

GE/Honeywell

Jack Welch of General Electric was treated to the Full Monti yesterday and it was not a pretty sight. The failure of GE and Honeywell to withdraw their $42bn aerospace merger left the European Competition Commissioner with no option but to prohibit it formally, which probably suited no-one.

GE now goes on the record as being a "dominant" player in the airline market, and where regulators see dominance they sooner or later start rooting around for evidence of abuse. As for Mr Monti, he will now have to set out his arguments for blocking the deal in detail, which will give GE's lawyers an excuse for picking through the text in search of ammunition for an appeal to the European Court of Justice.

Nor are the prospects for transatlantic harmony among regulators enhanced by Brussels' decision to block GE-Honeywell when it had already been given the green light by the US Justice Department.

Magnanimous in his victory, if that is the correct word, Mr Monti has pledged to strengthen co-operation with US anti-trust authorities to reduce the risk of another mess like this in future. But in doing so, Mr Monti must not surrender the principles which led Europe to block GE and Honeywell from merging after the Americans had arrogantly assumed approval was a foregone conclusion.

Whatever GE may say, this merger was essentially about strengthening GE's dominance in a way which would have allowed it to undermine the competition. In the short term, airline customers might have benefited from lower prices and better deals. But in the long-run, as the Commission rightly concluded, they and their customers would have paid a high price for a weakened competition.

j.warner@independent.co.uk

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