Outlook: Amersham bidders uninterested in Sir William's vision thing

Broadband Britain; Soft commission
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The Independent Online

Mrs Thatcher's first privatisation, a great British success story and something to do with diagnostics - but what is it exactly that Amersham does and what binds it together? Sir William Castell, the chief executive, often seems to have as much difficulty explaining it as the rest of us do in understanding it, and he's never entirely managed to convince the City of Amersham's raison d'être.

In his last chief executive's review, Sir William defined its purpose as that of "enabling personalised medicine", but the truth of the matter is that most City analysts continue to think of Amersham as a somewhat disjointed conglomerate of different medical interests.

Sir William's vision of a total body diagnostics company is superficially clever and alluring, from the machines that helped to map the human genome and can tell you what sort of diseases you might be predisposed to, through to protein separation and the original Amersham business of X-ray contrast agents.

Yet they are all different businesses with different customer bases and, beyond the sci-fi view of a time when drugs are customised according to genetic make-up, there is actually very little that unites X-ray agents, sold almost exclusively to hospitals, and drug research equipment, which is sold to big pharmas and academia. Which is why the City is finding it so hard to work out where the bid approach disclosed yesterday might have come from. Inspired speculation alone would normally soon identify the likely bidder. Not in this case. Lehman Brothers has produced a list of 11 possible bidders, which scarcely narrows the field, particularly when you consider that one of the most likely candidates - Johnson & Johnson - is not on Lehman's list at all.

Some analysts had Roche and Shire as hot favourites to bid, others suggested that they would make no sense whatsoever. Anyway, whoever it might be is unlikely to be interested in either the whole of Amersham or in Sir William's vision. This is much more likely to be a break-up bid than a trophy hunting exercise. The buyer would be interested either in Amersham's hospital client base, or its biotech customers, but not both.

Furthermore, there are few companies in the world that could afford a cash bid of this size, and an all-paper offer for a dismembering exercise would be fraught with difficulty. A recent all-share offer by Barr Labs for Galon was withdrawn before being properly tabled because of the damage it did to Barr's share price. And, in any case, an all-shares offer from an overseas company would be highly problematic for Amersham's still largely British institutional shareholder base. Many pension funds have rules that would prevent them swapping their holdings in FTSE 100 stocks for those in overseas companies. Investors shouldn't therefore count on a successful resolution to the bid approach.

Amersham has prospered because it has some great businesses within it, but fundamentally it remains a collection of interests rather than a unified whole. Sir William has led his company well in his 14 years at the helm. He's also been responsible for some truly inspired strategic moves, not least the merger with Nycomed which, as a cross-border marriage of different corporate cultures and traditions, has succeeded against the odds. The trouble with this bid approach, particularly if it comes to nothing, is that it focuses attention on Amersham's, well, lack of focus.

One way or another, Sir William looks as if he'll have a lot more explaining to do.

Broadband Britain

Renato Soru is a former investment banker who delights in running one of Europe's largest internet service providers, Tiscali, from that most unlikely centre of the cyberspace universe, Cagliari in Sardinia. He's also one of the survivors of the dot.com carnage, a trick he's achieved by aggressively buying internet and telecom assets at rock bottom prices. Analysts used to know him as "the man with the plan", never mind that outside the goal of becoming Europe's biggest ISP, the plan was always a little bit vague.

Still, now positioned as the third biggest, he's well on his way, and unlike many others, he saw the leap to broadband coming and prepared his strategy accordingly. Tiscali has been in Britain for some years now, but outside the acquisition of some small, specialist ISPs and telecom networks, it has yet to make much impact. Mr Soru wants to change that, hence yesterday's aggressively priced package of broadband offerings. Tiscali believes there is an important market somewhere between full-on broadband and the dial-up narrowband access that still accounts for the bulk of domestic subscribers.

The basic product is pitched at £15.99 a month with a free modem and a connection charge of £25, which makes it a lot cheaper than almost any other broadband offering on the market, and only a little bit more than unlimited access narrowband. The drawback is that the product is just three-times faster than narrowband, against about 10 times for most broadband ISPs.

Even so, Tiscali may be right in thinking that potentially there's a big market for slower but cheaper access. Not everyone wants a BMW. Tiscali aims to be the Ford Focus of the broadband world. One advantage is that Tiscali has its own network, unlike AOL and Freeserve, which have to piggie back off the British Telecom network and are therefore limited in the prices and speeds they can offer.

Even so Tiscali's stated aim of winning a fifth of all new broadband connections looks hugely over ambitious without massive marketing expenditure, which the company seems unprepared to countenance. AOL, the big daddy of ISPs, was forced to pay through the nose to displace Freeserve in getting exclusive distribution through Dixons, and its advertising spend dwarfs anything Tiscali is prepared to throw at the problem.

Mr Soru is about to provide some welcome competition to the British broadband market but, without well-funded promotion, it seems doubtful many will notice.

Soft commission

The City fund management industry is refusing to take Financial Services Authority plans to outlaw soft commissions lying down. In a blistering speech to City practitioners yesterday, Richard Saunders, chief executive of the Investment Management Association, warned that they would drive large parts of the industry offshore, would increase dealing spreads, and would decimate the production of company research.

Mr Saunders makes some good points, but I fear he protests too much. We live in a world of increasingly competitive and transparent pricing, and the idea that share buyers shouldn't be allowed to know precisely what it is they are paying for is plainly indefensible. Soft commission, under which brokers provide services to fund managers bought from a third party - typically on line dealing and information services - in return for an agreed volume of dealing commission is a semi-corrupt practice that has no part in the modern City. The related practice of "bundling", which is the provision of brokers' research within the dealing commission, isn't much better.

Unbundling will be painful and structural disruptive, for it is certainly the case that investors wouldn't pay for a great deal of the City research that is produced if they knew the cost. Mr Saunders thinks this will result in a less transparent and well-informed market, which could cause spreads to widen. I doubt that, for there will always be a market for the best research. Where perhaps Mr Saunders may have a point would be in arguing that in the scale of dealing cost iniquities, soft commission comes quite a long way down a list headed by the biggest dealing cost of the lot - stamp duty. Until stamp duty is abolished, the City is never going to be fully competitive for share trading.

jeremy.warner@independent.co.uk

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