Outlook: Government keeps its options open as nuclear is kept private

Monsoon protest; Premiership rights
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The Independent Online

The lights are on but there are hardly any shareholders left in the building. The meltdown and last-minute redemption of British Energy is a shocking reminder that privatisations are not always a one-way bet. Investors who were clever, or perhaps lucky enough, could have doubled their money if they had got out of the nuclear generator at the right moment. Those still left in yesterday were given Hobson's choice - accept the Government's terms and keep 2.5 per cent of the company or reject it and get nothing. Even Railtrack's investors did better.

Malcolm Stacey, who invested £55,000 in now worthless shares, has set up his own website to vent his spleen. He might as well howl at the moon. Or perhaps, better still, take his revenge at the ballot box. The Government is as responsible as anyone for throwing the switch on British Energy.

True, poor management was a large part of the mischief. British Energy over-extended itself with foreign acquisitions. It over-paid for the coal-fired generating plant at the top of the market. And, crucially, it failed to ensure it had a natural hedge against falling wholesale electricity prices by establishing a presence in the retail supply market. In the end this proved fatal for a baseload generator which was powerless to do anything other than take the price on offer.

The reason, however, that wholesale prices collapsed to below British Energy's operating costs was the Government's introduction of the new electricity trading arrangements, or Neta as it was snappily known. Neta helped drive a good few other generator-only companies to the wall as well, yet in the end British Energy was too big to be allowed to fail. Bondholders get equity for their debt, while the taxpayer takes on responsibility for the company's £4bn of decommissioning liabilities.

This neatly avoids Gordon Brown having to include the nuclear stockpile of debt in the public finances. It also leaves open a channel to the financial markets should wind power prove not to be the answer to Britain's looming energy crisis and another generation of nukes needs to be built. But after BE would any sane investor seriously want to go nuclear again?

Monsoon protest

The board of Monsoon, the company that popularised ethnic fashion on the high street, is facing a full-scale City hurricane over its failure to do anything about the attempt by the chairman's family to buy back shares on the cheap, cancel the company's listing and slash the dividend. The whole thing, which comes to a head tomorrow when a crucial put option expires, appears to be perfectly legal but it still stinks to high heaven.

Peter Simon, the chairman, is already so close to success that it seems almost certain he'll get his way. Even so, he may find himself at the wrong end of a Financial Services Authority investigation. The issue that could trigger one is whether material information was withheld from the stock market at a crucial phase of the buy-back process.

The independent non-executives already find themselves accused of a derogation of fiduciary duties in failing to make any quantitative comment on the offer, and one of them, John Spooner, has had to reverse his participation in the buy-back after being threatened with legal action for breach of the Companies Act.

The affair is so fiendishly complicated that it needs some explaining. Mr Simon together with two family trusts have for long been the proud owners of more than 70 per cent of the shares. Frustrated by the disciplines of being a fully listed company, they want to move to the Alternative Investment Market (AIM), where the disclosure and other requirements are less onerous. They also want to cut the dividend so that the money can be spent on other things.

The full share listing is in most cases automatically cancelled if less than 25 per cent of the share capital is traded. So in theory all they would have to do is buy back a little bit more of the share capital, and they can achieve their aim. Unfortunately, any such exercise rapidly executed would force them under the Takeover Code to make an offer for the whole of the outstanding minority. An ingenious mechanism was therefore devised for circumventing the requirements of the code altogether.

One of the family trusts sold a shed load of put options in the market, the effect of which is to give investors the right to sell their shares in Monsoon to the trust at a particular price - in this case 140p each. At the time, the options looked relatively attractive, as the group's highly regarded managing director, Rose Foster, had recently announced she was leaving for another job, raising doubts about the company's future management direction. Shortly after the first closing date for the put option offer, the company released a buoyant trading statement. Then, shortly after the final closing date, the company announced Ms Foster wouldn't be leaving after all.

Many institutional shareholders had by then already dumped their stock in disgust, knowing that a move to AIM would preclude them from holding the shares. As it turns out, Monsoon doesn't have to lose its listing even if the Simon family owns more than 75 per cent of the shares. Dispensations can be sought. So, on all kinds of fronts, the City believes it was misled. In any case, there's quite enough here for an FSA investigation.

Mr Simon would argue that it is precisely because of this sort of hullabaloo that he wants to quit the stock market, so that he can run the company as he sees fit. Yet the truth of the matter is that having availed himself of all the advantages of the capital markets - including the realisation of 198p a share in the initial public offering, a price never seen since - he's now attempting to run rings round its disciplines. The whole affair is a lesson on the dangers of investing in minority situations, yet this is a particularly alarming example of it. The put option expires tomorrow, with Mr Simon already only a whisker away from 75 per cent of the shares. There is still a slim chance he won't make it. What a poke in the eye that would be.

Premiership rights

No wonder Tony Ball is leaving BSkyB. Mario Monti, the European Competition Commissioner, seems to have applied the logic of the Mad Hatter's tea party in raising fresh objections to the auction of Premiership TV rights. If BSkyB is to spend the next year or two in tortuous legal negotiations with the Premier League and the European Commission on whether it can or can't buy the live TV rights on the terms agreed, then Mr Ball is well out of it. There are better ways of spending your time.

The problem arises because basically there is only one pay-TV company in Britain, BSkyB. The cable companies are so enfeebled and divided that they cannot be serious contenders for any TV rights with mass pulling power. Meanwhile, ITV Digital was strangled at birth. As for the BBC, it cannot justify using licence fee money on the scale necessary for what is a minority interest contest.

The auction of the rights is therefore a charade. There can be only one serious bidder. If the live rights were divided up into more bite-sized packages, then others might be tempted in, but the effect would be greatly to reduce the value of the whole. Sky is ready to pay a big premium for exclusivity. Without it, Sky loses its unique selling proposition and the rights would therefore be worth much less.

Of course it would be a great thing if there could be more competition for the rights. In theory, the consumer would end up paying less. But Mr Monti seems to have forgotten the law of unintended consequences in following this line of reasoning. There would also be less money going into the game, it would therefore be able to afford fewer star players and, ultimately, the Premiership clubs would be worse off for it. For many football fans, it must be intensely irritating to have to buy Sky to get live football on TV. Yet, perhaps strangely, Sky's monopoly may be in the best interests of the game.