Outlook: BA saves Byers from creating another fine mess

Energis calamity; P&O/Carnival  
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The Independent Online

Phew! That was a close shave. Just as it looked as if Stephen Byers, our beleaguered Transport Secretary, was about to commit his country to another ghastly policy error, British Airways has come riding to his rescue and announced it is not interested in proceeding with its American Airlines alliance on the terms dictated by the US Department of Transportation after all.

This was just as well. Not for the first time, the Government was about to confuse what was best for British Airways with what's best for the British airline industry. It did so when BA's takeover of British Caledonian was allowed through with only minimal conditions to protect competition. And it was about to do it again in the coming week.

The "open skies" accord that Mr Byers is frantically trying to rush through with his US counterpart would have cleared the way for BA's American Airlines alliance. But it would have done nothing to serve the interests of most other British airlines and, more importantly, their passengers. The two deals go hand in hand. You could not have had one without the other, and in his attempt to help BA secure its prize, Mr Byers was in danger of disadvantaging everyone else. The open skies agreement would have given US carriers unprecedented access to UK and European markets with little in return for UK airlines, other than BA of course.

This was seriously bad news for the likes of Sir Richard Branson's Virgin Atlantic. But it also looked ominous for the new breed of low-cost carriers such as easyJet, Ryanair and Go. The agreement which Mr Byers hoped to sign in Washington early next week would have allow US carriers so-called Seventh Freedom rights. This is the right to operate direct from the UK to Europe, not just by picking up passengers on route through London but by setting up dedicated short-haul networks based here.

The US offered reciprocity of course. But what UK carrier would be interested in flying passengers from New York to Canada or Mexico while the great US hinterland remains off limits? It's lucky for Mr Byers, as well as everyone else concerned, that in the end BA found the US's terms too onerous to agree to. Mr Byers plainly didn't have the same problem. As for BA, it's presumably the end of the line for Lord Marshall, the main architect of the AA alliance. Rod Eddington, the chief executive, can meanwhile look forward to dusting off his KLM merger plans instead.

Energis calamity

How serious could it get for Energis, the telecommunications company which on Thursday issued a calamitous profits warning? There's no doubt that David Wickham, the chief executive, and his co-directors have put the company in a perilous position by agreeing new loan facilities on terms that they can no longer meet. If bankers wanted to, they could pull the plug, but although they have good reason to be furious at the turn of events, it is not clear that to act in haste would help the situation. Last night they were persuaded to put out a statement to just that effect.

The most extraordinary thing about the whole affair is how unnecessary it was. If Mr Wickham had admitted to the market in December before he renegotiated his loans that he might not make his numbers, it would have been a disappointment, but it would not have been a disaster. As it is, he appears stupidly to have linked the terms of the new loan package to these overly optimistic forecasts of Ebitda. In the process he got an extremely favourable rate of interest, but he also bet the ranch.

Should Mr Wickham be made to pay for his recklessness with his job? It may be that the débâcle eventually requires a sacrificial offering, but for the time being it is in everyone's interests ­ bankers, shareholders, bondholders and employees ­ that the situation is stabilised. Bankers are only interested in the security of their money, and it is by no means apparent that they would get it all back again if they pulled the plug.

Energis is in the process of renegotiating some big contracts, including that of the internet service provider Freeserve. It would only need one of these to go awry for the position to become critical. Calm heads need to prevail, and it is essential that National Grid, which with two representatives on the Energis board is not entirely innocent in the affair, lends both moral and financial support. Otherwise it might see its remaining 36 per cent stake in the company disappear down the plug along with everyone else.

P&O/Carnival

We've been taken to task for suggesting that P&O Princess directors may have disadvantaged their own shareholders in agreeing shut-out merger terms with Royal Caribbean. The proper way of looking at it, we are told, is that Lord Sterling and his board have done a remarkably clever deal which may yet give rise to an auction between Royal Caribbean and its US-based rival Carnival, but at the very least guarantees that the deal already done with Royal Caribbean remains on the table.

There's something in this argument, and it may have been a touch unfair to accuse P&O's non-executives, who include a former business editor of this newspaper no less, of a possible breach of fiduciary duty. The point is that Royal Caribbean would never have agreed merger terms without a high degree of deal protection. Royal Caribbean's worst nightmare is that Carnival and P&O should come together. It would much prefer the status quo to such an outcome, so in agreeing merger terms it had to be sure it didn't act as a catalyst for Carnival to secure P&O's hand instead.

In order to secure the Royal Caribbean deal, the P&O board therefore had to agree the break-up fee, the poison pill joint venture and the "no shop" clause that prevents it soliciting a higher bid from Carnival.

Why didn't P&O simply put itself up for sale and let the best man win? The answer offered up is that Royal Caribbean would never have entered such a contest, nor could it have done against the superior fire power of Carnival. Ergo, Carnival would have got P&O on the cheap. In any takeover situation, directors have an obligation to keep their options open, but in this case the options had to be surrendered to some degree in order to secure the best possible deal.

As it happens, P&O believes that its options haven't entirely been closed off anyway. The joint venture poison pill is time limited. P&O believes it has the unilateral right to walk away from the joint venture and the Royal Caribbean deal come next January if Carnival has by then come up with something better which has been cleared by regulators.

In order for this to happen, however, shareholders have to propose and vote through a motion postponing the meeting to approve the Royal Caribbean merger, which is scheduled for 14 February. The board itself cannot be seen to support such a course of action, you understand, since that would breach the terms of its "no shop" deal with Royal Caribbean, but there's a clear nod and a wink there if you care to look for it.

Intriguing, if mind boggling, stuff. But in the end it may prove academic anyway. The more of a storm the cruise liner engenders, the more likely it seems that both bids will come to grief on the rocks of regulatory intransigence. At least Micky Arison, chairman of Carnival, is candid about it. He reckons the chances of either bid gaining regulatory clearance are slim, and he's probably right.

j.warner@independent.co.uk

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