Outlook: Safeway faces death by thousand cuts as bidders hold off

BBC licence fee; GlaxoSmithKline

Roll up, roll up. What am I bid for one half-way decent supermarket chain. Has seen better days but still a nice little earner. Break-up offers would be considered. What, no one?

Shares in Safeway have risen a bit since rumours first started circulating of a bid from the Wal-Mart owned Asda, but even the weekend's flurry of press reports about the alternative possibility of a venture capital offer has failed to lift them by much. If there's anything out there at all, the stock market doesn't seem to take it very seriously.

To see how far Safeway has fallen, just consider this. Three years ago, Asda, then the number four in the market in terms of sales, was acquired by Wal-Mart for £6.7bn. Today the positions are reversed. Asda is the number three and Safeway the number four. Yet today it would be possible to buy Safeway's for not much more than the £3.3bn value of its debt and equity. With the shares trading on an earnings multiple of just 9 and yielding 6 per cent, surely it's worth someone having a go?

Well maybe, but even £3.3bn is quite a bite for any venture capital bid in these markets, and as for Wal-Mart, the regulatory obstacles may still be too big. Alan Leighton, the former Asda chief executive, does indeed seem to have been asked about whether he might be prepared to head up a venture capital bid, but does he really want to do the hard slog of a supermarkets turnaround all over again? For the time being he's got his hands filled with Consignia, so he could only be a figure head in any case. Nor is it clear what the venture capitalists want to do with the company – break it up or try and make a go of it.

On a long-term view, Safeway's days as an independent company must be numbered. The strategy put in place by Carlos Criado-Perez for turning the company around has self-evidently stalled. Unable to compete on price with Tesco and Asda, Safeway is losing market share at speed, yet unlike Sainsbury's it has also failed to carve itself out a decent role as a more upmarket player. Its sites are an eclectic mix of small and big, and many of them are quite poorly located. The selective price promotions brought in by Mr Criado-Perez worked for a while, but there's only so much you can do to create the illusion of lower prices. Eventually the shopper catches on.

Ultimately, there may be no place for a fourth national chain of supermarkets. Wal-Mart's success with Asda seems to support the claim that even lower prices might be possible if it were allowed to buy Safeway too, or at least a part of it. Even so, we may not yet be at the stage where the competition authorities are prepared to tolerate four into three, or three and a bit if William Morrison is included in any carve-up of assets. Slow death by a thousand cuts may yet be Safeway's fate.

BBC licence fee

Published three years ago, the Gavyn Davies report on funding the BBC was meant to put the lid on the licence fee debate, if not for good at least until renewal of the Royal Charter in 2006. Plainly it hasn't, as the recent flurry of attempts to question its legitimacy amply demonstrates. This is an issue that refuses to go away, and by insisting last summer that the licence free was safe for the foreseeable future, Tessa Jowell, the Culture Secretary, has only succeeded in re-activating the debate.

The latest challenge comes from the media commentator, Jonathan Miller, who is planning to test the legality of the £112 a year fee by refusing to pay it. Mr Miller's case is based on section 10 of the European Convention on Human rights which deals with the freedom to receive information without interference. Mr Miller also asserts that the great bulk of those prosecuted for non payment are the most disadvantaged members of society - those on benefit, single mothers, students, refugees and the like. But that's not primarily why he's protesting. His main point is that the licence fee is a retrogressive poll tax which in an age of multi-channel TV nobody should have to pay.

According to the BBC's own research, the vast majority of people think the licence fee tremendous value for money. Two recent surveys seem to contradict that view. A Daily Telegraph poll published yesterday found that 58 per cent of those polled thought the licence fee no longer justified. There are only three alternatives to the licence fee as a source of funding – advertising, subscription and a variation of subscription TV which would make the BBC into an organisation mutually owned by those who want to pay for it.

None of them seems likely to be capable of supporting the BBC in its present form. The licence fee raises £2.3bn a year in revenue for the BBC. ITV doesn't make nearly that much from advertising. The available pool of TV and radio advertising would have to be spread even thinner if the BBC entered the market. Few in the commercial sector would welcome such a development. BSkyB makes more than the BBC gets from the licence fee from subscriptions, but it achieves this by expensively buying in sports and film rights. There is no obligation to provide public service TV or radio.

If the Government wants the BBC in its present form to persist, then it's hard to see what the alternative to the licence fee might be. And there's the rub, for those who argue against the licence fee tend also to want root and branch reform of the BBC as well. The two causes go hand in hand.

The BBC is a national leviathan and a tradition for which there are no obvious parallels anywhere else in the world. Over the years it has become an expert in self preservation. Both politically and commercially, it hasn't put a foot wrong under its present director general, Greg Dyke. He's managed to use the Blair Government's obvious sympathy for the BBC's raison d'être to best advantage, the acquisition of the digital terrestrial platform being only the latest devise for defending the licence fee.

The BBC's Freeview proposition, officially launched this week, means that when the Government comes to turn off the analogue signal, there will be millions of households without the conditional access technology that would be necessary to make the BBC into a subscription based service. Mr Miller should be congratulated on his attempt to keep the debate alive, but will he succeed in undermining the licence fee? Now why does that seem so unlikely?

GlaxoSmithKline

Most big consolidating mergers are much more about City fees than business sense. Few of them unambiguously succeed in the attempt to merge alien corporate cultures, and although the cost cutting potential can be huge, it is often swamped out by the loss of morale and direction involved in achieving the promised surgery. GlaxoSmithKline seems fully to be proving the point.

The company's failure to deliver continues to be a subject of heated discussion in the City, even though the disappointment of the interim results is now last week's news. Sir Christopher Hogg, already in the thick of one corporate crisis, Reuters, now finds himself having to deal with a second. The merger of Glaxo Wellcome with Smith Kline Beecham isn't working and the City wants to know why.

In part it's a public relations problem. The whole of the pharmaceuticals industry is going through a difficult patch, but Jean-Pierre Garnier, the chief executive, has been particularly poor at explaining it. JP doesn't like dealing with the press and he seems to have a genuinely low opinion of it. He shouldn't be surprised when it jumps up and bites him on the ankle.

But there's plainly more to it than that. If JP is the wrong man for the job in troubled times, so too is the company's head of research and development, Tadataka Yamada, who seems to have presided over the most terrible plunge in morale in the group's science base. There's meant to be a huge wealth of compounds in early stage development, but the way things are going, you have to wonder how many will make it to market.

jeremy.warner@independent.co.uk