Outlook: Is it a bird, is it a plane? No, it's privatisation on the wane

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The Independent Online

The world of transport will never be the same again. It is, as they say, the end of an era. The death of a concept that was light years ahead of its time. Rail privatisation, of course, not Concorde. Not that many people will mourn its passing, save for those rail maintenance bosses who were hauled into Euston on Thursday night and told it was the end of the line.

Network Rail, the Government-sponsored company that owns the tracks, is slowly transmogrifying back into British Rail. It will almost be like the good old days come next summer when Network Rail has taken all maintenance back in-house, leaving no-one but itself to blame if trains keep coming off the tracks.

But that is only part of the story. The Strategic Rail Authority too has been tightening the state's grip on the companies that run the trains. A dozen of the country's 25 passenger franchises are now management contracts let by the SRA and on New Year's Eve, or perhaps sooner, the SRA will take direct control of the Connex commuter franchise in the south-east.

This is not, Alistair Darling insists, renationalisation. The Transport Secretary wants the private sector as much as he ever did. It is just that he has a funny way of showing it. His colleague, Gordon Brown, also needs private capital to keep the railways from seizing up. Sleight of hand and a supine performance from the Office for National Statistics have enabled the Chancellor to keep Network Rail's £22bn of debt off the public finances. But he needs a lot more cash than this from the private sector to prevent the Government's ten-year transport plan degenerating into a complete shambles.

Rail privatisation was a hopelessly flawed experiment and its legacy was an industry divided up into more than 100 different moving parts, from the leasing of rolling stock to the painting of sleepers, which was bad news for safety. Now, Humpty Dumpty is slowly being put back together again. A conventional relationship of buyer and supplier is being re-established between a state-run rail industry and the private sector. It may suit Mr Darling's book to call this a public-private partnership but it is renationalisation by the back door.

It also calls into question the structure of the Tube, which is still run by London Underground but privately owned by three different infrastructure companies. Twist and turn as he did yesterday, Mr Darling was unable to explain why a system which has failed on the above ground rail network is appropriate for the below ground one.

Actually, there are fifteen billion answers and each one has a pound sign in front of it. This is the sum the private sector has offered to invest in the Tube in return for receiving an annual rental payment from the state - public spending on the never-never, in other words.

This is why the Government, ultimately, cannot afford to alienate the private sector which it will continue to rely upon to renew the rail network and undertake big enhancement projects such as the much discussed high-speed north-south line.

The terse reaction from those maintenance contractors who bought their businesses in good faith from the Government and now discover they are worthless, suggests that trust is at a low ebb. If they are bold enough to shake hands on any future business with Network Rail they would be advised to count their fingers afterwards.

New Look

Walk into any New Look shop and you can buy a Luella Bartley designed coat for £30 and a matching handbag for a tenner. Tom Singh, the founder and biggest shareholder, also thinks he can pick up the whole company for a bargain.

Mr Singh, who began New Look back in 1969, has been building up to making an offer for the business since he announced in July that Deutsche Bank was undertaking a "strategic review" of the options for his 28 per cent stake.

At first it was thought that he was putting the company in play by selling off his shareholding. But it quickly became apparent that what Mr Singh actually had in mind was taking his creation private once more.

And so yesterday his bid worth 348p finally landed on the doormat of the independent directors. The shares have never seen that price before and anyone who bought in at 50p a couple of years ago would now be sitting pretty.

The offer is being financed by Apax and Permira, which is on the rebound from its failure earlier this week to tuck Debenhams in its shopping basket.

When the founder of a company offers to buy it with the help of private equity backers, the first thing shareholders tend to ask is why. The second is what are existing shareholders missing out on.

In New Look's case, that could be the next Marks & Sparks, if you believe Mr Singh's hype. The estate has been revamped in recent years through the migration to bigger stores in better locations and the first tentative steps are being taken into men's clothing - a competitive but lucrative market if New Look gets it right. Meanwhile its cheap prices and chic image, honed through heavy promotion in the women's glossies, should help insulate it from a High Street downturn.

The executive directors have been given the all-clear to "co-operate" with Mr Singh's bid, which means it falls to the non-execs to decide whether he is buying the business on the cheap. Step forward, Dick Barfield, ex-chief investment manager at Standard Life, John Grieves, former senior partner at the City law firm Freshfields, and Carolyn McCall, managing director of the Guardian newspaper.

They have given Permira and Co the right to start due diligence. But perhaps they should also follow the example of Peter Jarvis at Debenhams who paid for CVC Partners and Texas Pacific to come in and look over the books as well. It paid dividends for Debs' shareholders and it could force Mr Singh to take a New Look at his offer price.

Google's googly

Type Google and IPO into your internet search engine (Google, naturally) and up come 52,500 hits in less than a tenth of a second. Not bad. But type in Wall Street and scandal and 142,000 hits are displayed. Even better.

Perhaps that explains why the boys from Menlo Park, California are keen to float their business but less sure who to trust with the IPO. Wall Street underwriting commissions have traditionally netted the bulge bracket banks a 7 per cent fee. But the dot.com boom and subsequent bust exposed the killing that was being made on the side through the pumping and spinning of new issues and preferential allocation of hot shares to favoured clients. The criminal trials have just begun.

Sergey Brin and Larry Page, the two original googles, think they may have the answer. Why not by-pass the banks and brokers and simply auction the shares on the web themselves. After all, it is the way that Google sells its advertising space.

The banks - surprise, surprise - have recoiled in horror, warning that this could leave Google with a massive base of small investors who have paid top dollar for their shares, and nothing "for the market" as the phrase goes. Worse, who will ensure liquidity in the stock if large institutional shareholders cannot be guaranteed to load up with large blocks of shares?

In truth, it is early days yet. Floating the notion of an IPO on the web looks suspiciously like a ploy to get Wall Street to lower its underwriting fees. The only precedents for such web flotations are a handful of comparatively tiny companies, whereas Google could have a market valuation of $15bn or upwards. Worth America's investment banks sharpening their pencils a little.

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