Outlook: Energis pays a heavy price for over-optimism

Rooney's nemesis; Arcadia waiting  
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When the driving force behind an entrepreneurially led company decides to leave, it's generally time to sell the stock, and so it has proved with Energis, the telecommunications company. Energis was one of the brightest and the best of the so-called alternative network operators to spring up in the telco mania of the late 1990s.

It wasn't Mike Grabiner's idea to string high bandwidth cable along the National Grid's electricity pylons, he wasn't responsible for the network's early development, nor did he even pull the company's original big corporate client, the BBC, but he was the brains behind Energis's transformation from a dormant network into a living company, with real and growing revenues and an international strategy to match.

The telco boom was already on the wane by the time he decided in his early 50s to do the trendy thing and quit for family life. But boy has the stock bombed since. It would be a little unfair to blame David Wickham, Mr Grabiner's successor as chief executive, for this. It's relatively easy to manage a business in a boom, much more difficult in a downturn. But nor has Mr Wickham's now apparent over optimism done him any favours either.

As recently as late September, he was presenting Energis as the telco that was bucking the trend. Others were struggling to survive, but Energis would make its numbers, the finances were secure, and if the stock price kept falling, that was only because of those wretched short selling hedge funds. Plainly they knew more than he did, for the short fall in revenues announced yesterday is being put down in part to poor financial reporting systems. Far from being fully funded, the company is at risk of breaching banking covenants, for which read there may have to be another refinancing.

Energis is still fundamentally a good company with sound long-term prospects. But confidence has been badly damaged, and the worst thing about it from Mr Wickham's point of view is that he only has himself to blame. This is the bombed out telecommunications sector for heaven's sake. He didn't have to be so upbeat. Yesterday's halving of the share price is a harsh punishment for a business that seems to be doing the right things to correct the position, but as Mr Wickham is discovering, it's an unforgiving world we now live in.

Rooney's nemesis

It's hard to keep a straight face. Little more than a year ago, Baltimore Technologies bought a company called Content Technologies, which designs e-mail screening software, for £703m. Yesterday it sold the same business for £20.5m. Admittedly, Content was paid for in puffed-up Baltimore shares, while £12m of the sale price is in that most desirable of all commodities ­ straight cash. Even so, the scale of the value destruction defies description. No wonder the bumptious Fran Rooney, former chief executive, was sent packing. Content was his deal and eventually it proved his nemesis too.

We have to be a little bit careful here, because Mr Rooney is suing Baltimore for allegedly bad mouthing him in the press after he left. So there's a limit to what we can write without attracting Mr Rooney's writ ourselves. What we can say, however, is that Mr Rooney managed to cash in more than £6m of his chips before the internet madness entirely subsided. Mr Rooney made his fortune out of Baltimore. The company impoverished just about everyone else who invested in it. In such circumstances, most people would think it wise to lie doggo. Not Mr Rooney, who seems to think he's got a reputation to defend.

At the peak of the technology bubble, Baltimore shares changed hands at more than £12 each (price today 14.75p) and briefly they were members of the FTSE 100. In truth, the company never amounted to much more than the rights to exploit a number of complex American-developed encryption techniques ­ so-called public key infrastructure technology. At that stage it waswidely believedall commerce eventually would be transacted over the internet so, as a company that promised to make the internet secure, Baltimore seemed a hot property.

We all know what happened next. E-commerce failed to take off in the way anticipated and, despite Baltimore's technology, it proved hard to persuade people to trust cyberspace with their money transactions. Today, Baltimore sells just $15m worth of its wares a quarter, which is but a pin prick against the billions of dollars a year the internet security market was meant to be worth.

Mr Rooney can hardly be blamed for the internet bubble, but he was part of the marketing hype that made it possible. Still, perhaps he should look on the bright side. Buying a business for £690m which is later sold for £20.5m must earn him some sort of a place in the record books.

Arcadia waiting

Adam Broadbent, the chairman of Arcadia, was playing his part to the full at the company's annual meeting yesterday. Asked by one shareholder what was going on with the mooted bid from Baugur of Iceland, he was full of sympathy. By heaven, we've urged them to get on with it, he said, but the ball is very much in their court and we can't force them to bid.

The question from the floor was a fair one. It is now three months since the Icelandic invaders landed their longboats on the Arcadia coast. Since then we've heard virtually nothing. Is that 280p-300p per share offer ever going to be made? With every passing week, it seems less likely that the Icelandic minnow will be able to muster the necessary finance, but still it refuses to be hurried.

Shouldn't the Takeover Panel do something? Under section 35.1 (b) of the City Code on Takeovers and Mergers, the panel can force a bidder to "put up or shut up" if a delay in making a formal bid begins to damage the target's business prospects.

But there's the rub. The Panel can only act if the target makes a formal complaint. And Arcadia shows no sign of doing so. This reticence tells us all we need to know about the Arcadia board's view of the Baugur bid. If Arcadia holds a gun to Baugur's head it runs the risk of losing the bid altogether. With millions of share options riding on it (£16m worth in the case of the chief executive, Stuart Rose) this is risk it feel disinclined to take.

Baugur continues to look an unlikely bidder. It is a smaller company than Arcadia with no experience of the cut-throat world of the British high street, Baugur continues to look an unlikely bidder. But if it is stupid enough to make an offer at something north of 300p a share, then Arcadia will bite its hand off to accept. So the waiting game goes on.

j.warner@independent.co.uk

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