Outlook: Prickly Sir Ralph deserves his place in history

O'Neill's optimism; Publicis/Bcom3; National Express  
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The Independent Online

Sir Ralph Robins, chairman of Rolls-Royce, is no great fan of the City and it of him by the look of the 7 per cent surge in the Rolls-Royce share price that greeted news of his retirement. A satirical response, perhaps, to Sir Ralph's lament that the financial markets have never recognised the true value of the company he has led for the past decade.

He has a point. Rolls is the only British engineering company of world stature. Twenty years ago Rolls was a poor third in the aero-engine league with a 7 per cent share of the market and a presence on just four airframes. Today it powers 32 different aircraft and is snapping at the heels of the market leader, General Electric, having seen off Pratt & Whitney long ago. On some aircraft such as the Airbus A330 and Boeing 777, the workhorses of the modern long-haul fleet, Rolls is actually out in front.

There have been mistakes along the way. The company very nearly went bust in 1971 developing the original RB211, and Sir Ralph bet the ranch again when Rolls launched the Trent engine two decades later. He soon realised that even the best companies cannot fly on one engine alone, moving swiftly to bring risk and revenue sharing partners on board to prevent a corporate crash.

Rolls's expansion strategy has also been flawed. The takeover of NEI in 1989 was an unmitigated disaster while the jury is still out on the more recent acquisition of Vickers, a deal which left Rolls with a second-hand tank business that looks even more of a liability now the Greeks have decided not to buy the Challenger 2.

Sir Ralph's prickly relationship with the City has hardly helped. A salesman to his boots, Sir Ralph was always most at home hobnobbing it with Middle East potentates but his social skills rather deserted him when it came to investors. Profit warnings are always a shock, but the one from Rolls in August 2000 really did come out of a clear blue sky.

For all this, Sir Ralph is that rare animal, a British engineer who has successfully run a big quoted industrial company and kept it independent when others have either been gobbled up or lost the fight to the Japanese and the Americans. For that, he deserves his place in the corporate history books more than most.

O'Neill's optimism

Paul O'Neill, the US Treasury Secretary, is taking great delight in being proved "right" about the US economy. When he first said there would be no US recession, no one believed him and his comments were widely seen as just another example of the political ineptitude that has come to characterise his reign at the US Treasury. To go out on a limb like that when it seemed obvious the economy was going down the pan was not just brave, it was ridiculous.

Now everyone agrees with him. Even Alan Greenspan, the Federal Reserve chairman, was at it yesterday, telling the Senate Banking Committee that renewed US expansion was "well under way". The US economy didn't dip in the final quarter of last year. In fact, it grew by 1.3 per cent. What's more, forecasts of 4 per cent growth for the first quarter of this year are starting to look more and more plausible.

It seems to have been the recession that never was, and Mr O'Neill must deserve some credit for not believing in it in the first place. Whether it will save his political skin is still, however, a moot point. In politics, it is much more important just not to be wrong than to be right, and Mr O'Neill is still widely regarded as something of a liability in Washington and beyond. We also have little idea at this stage quite how robust the US recovery really is. For many it doesn't feel like a recovery at all, and what uplift there is may owe as much to restocking after inventories had been run down to perilously low levels as anything else.

Business investment and spending remains low, indebtedness, both corporate and personal, is still high and stock market sentiment is all over the place. Indeed, after the veritable collapse in corporate earnings seen over the last year, it's hard to believe equity prices can be poised for a strong rebound, however much you believe in the potency of New Economy productivity gains. At close quarters, Mr O'Neill's boundless optimism is both infectious and endearing, but it's going to be a while yet before he can claim to have been proved wholly right in his predictions. For those who have forgotten it, another of Mr O'Neill's predictions in the immediate aftermath of 11 September was that the Dow Jones would be at record levels again within 18 months. Only 1,200 points to go.


Any attempt to combine French, Japanese and American culture within the same company would seem doomed to failure, but that's precisely what Publicis is doing by acquiring the privately owned Bcom3. On the face of it, this seems a reasonable enough deal which continues the process of consolidation the worldwide advertising industry has been undergoing for some years now.

Publicis and Bcom33 are number six and seventh respectively in the world league of advertising companies. Their merger will propel Publicis into the number four position, though it will remain a long way behind the big three of Omnicom, WPP and Interpublic, both in terms of billings and market capitalisation. What's more, Publicis is buying at the bottom of the cycle, which means it must be getting a good price, right?

Not necessarily, despite the 9 per cent surge in Publicis shares yesterday. Actually, Publicis seems to be buying in at rather more than the Japanese advertising group Dentsu paid for a 21 per cent stake in Bcom3 two years ago, which was at the top of the cycle. The new combination also inevitably brings with it some big conflicts of interest in advertising accounts, not least between Procter & Gamble and L'Oreal, and between Mars and Nestlé.

The Dentsu connection ought to give access to the much coveted Japanese market, but these associations tend to be a bit of a one way street, and it is not apparent why Dentsu, which will end up with 15 per cent of the combined group, would want to give Publicis access to its own backyard. And finally, it remains to be seen how French, Japanese and American ways of doing things mesh together in the new organisation.

All the same, if global consolidation is the way forward, then Publicis had little choice. This latest deal leaves Cordiant, Havas, Grey Advertising and Aegis looking even more out on a limb.

National Express

The £115m of public money that National Express has wrung from the Strategic Rail Authority in return for promising not to run its ScotRail and Central Trains franchises into the ground demonstrates how the private sector is always prepared to bear the risk until the risk actually materialises. National Express has managed both to get more cash out of taxpayers and renege on its investment promises. If this is one of the "quick wins" Richard Bowker promised when he took over as SRA chairman, what on earth would a defeat look like?