Damaging blow for a transatlantic partnership
Wednesday 31 July 1996
The anti-trust suit slapped on BA last night by its erstwhile transatlantic partner puts opposition to the alliance on a whole new plane. Apart from making it extremely tricky for the regulators to give BA and AA the all- clear now that USAir has charged the two airlines with trying to crush competition across the Atlantic, the fallout could be severe for the parallel open-skies negotiations which are scheduled to re-open in Washington today.
There is even the possibility of USAir seeking to join its anti-trust action to that of Virgin Atlantic, unless of course it is a pure coincidence that USAir has filed the suit in the same New York court as Virgin and asked for the same judge, Miriam Cederbaum, to hear its case.
What makes USAir's intervention particularly piquant is that it came just as BA was dispensing the in-flight champagne and crowing over the Commons Transport Select Committee's perverse report backing the alliance. The fact that the committee was riven by a split largely, though not exclusively, along party lines, with three members seeking an MMC referral, was conveniently ignored as was the weight of evidence it received and sifted exposing just how anti-competitive this alliance threatens to be.
Never mind. In the scheme of things the judgement of the select committee, though significant, is unlikely to prove critical. BA and AA will not be able to pull the wool over the eyes of either the Civil Aviation Authority or the Office of Fair Trading quite so easily.
If the Department of Trade and Industry can pack National Express off to the MMC over a few coach and rail routes then surely it is not too much to expect that a deal which carves up the entire UK-US air market is given the same treatment.
Media giants play a waiting game
Having lobbied hard for the right to buy each other, newspaper and television companies have been strangely quiet since the Broadcasting Bill was tabled late last year. The City thought royal assent last week might have fired the starting pistol, initiating a series of big-time mergers and bids. But no - or at least not yet.
The media sector is not really quiet, true. There has been one mega-merger, the pounds 3bn marriage of United and MAI, and one modest deal, the takeover of Caledonian by Scottish TV. The former was more a pre-emptive move to allow Lord Hollick's MAI to escape the clutches of Michael Green's Carlton, while the latter was pretty small beer. In the regional newspaper business, there has been a veritable avalanche, of course: Trinity International has bought Thomson's English titles, KKR has backed a management buyout of Reed Regional, and Emap has sold its titles to Johnston Press. Within two weeks or so, Pearson's Westminister Press is likely to be sold off.
But in the main, the cross-media binge, not to mention the long-heralded consolidation of the ITV sector, has yet to materialise. Why not?
Hands on heart, media executives will tell you that they are waiting for the commencement orders which will establish the formal date after which the Bill becomes law, probably 1 November. But that is hard to believe, as company after company (Granada, Carlton, Emap, United, MAI ...) have already shown themselves willing to use various legal but devious dodges to warehouse shares in advance of a change in legislation.
The real answer, at least when it comes to television stocks, is price. The shares of the main listed ITV bid candidates are sky-high, and no responsible management wants to pay silly money. Certainly Carlton, not known to overpay, would be very happy to own HTV, the ITV company for Wales and the West, but is balking at shelling out the pounds 400m the market seems to be expecting. So why not wait, Mr Green seems to be indicating.
The only exception is Granada's designs on Yorkshire-Tyne Tees. Granada's rating in the City is so high, and its share price so buoyant, that a two-for-one share offer for YTT would be a breeze, even at the northern company's asinine trading multiple. Remember, too, that Granada already has a 25 per cent stake, for which it paid an average of about pounds 4 a share, compared to the current price of pounds 12.50. No other bidder would match that advantage.
Moreover, the deal makes strategic sense, as it would bring together the stellar programming and production capabilities of YTT and the equally impressive assets of Granada and London Weekend Television. The odds have to be that Granada will get YTT. For the rest of the sector, it is (and it should be) all about price and synergy, in equal measures.
Remy could be ripe for Anglo-Saxon blending
Tesco may have turned its nose up at the French supermarket group Docks de France but oranges, as they say, are not the only fruit. The drinks group Remy Cointreau, which yesterday produced a dismal set of results thanks partly to the franc fort policy, could be ripe for a little Anglo- Saxon blending with Grand Metropolitan.
Grand Met's IDV is the world's number one in vodka with Smirnoff and number two in whisky with J&B. What it does not have is a decent cognac. Of the three brands that matter, Martell belongs to Seagram and LMVH has control of Henessey, which just leaves Remy.
What Grand Met does have, however, is a close relationship with Highland Distillers through their shared ownership of North British Distillers. And what Highland Distillers has is a close relationship with Remy through the 19 per cent stake it holds via Remy's parent company Orpar.
Grand Met would have little difficulty assembling the fire power to mount a full bid costing somewhere north of pounds 600m. But that is academic since the flies in this particular digestif are the Heriard-Dubreuil family which owns and runs Remy and the French knack of closing ranks to repel unwelcome suitors.
Although Remy is a quoted stock, more than 60 per cent of the shares are in the hands of Orpar and the Heriard-Dubreuil family. A further 7 per cent or so is owned by Cointreau and Krug interests. Even with Highland Distillers' 19 per cent, Grand Met would probably find Remy impervious to anything other than an agreed offer.
But Remy and Grand Met had a business relationship back in the 1980s and the best arrangement now might be some form of joint venture that would give IDV access to a cognac brand and Remy access to IDV's extensive distribution channels and marketing clout.
French chauvinism would be an obstacle but looking at Remy's towering debts and the poor prospects for its cognac sales, it might be wise to swallow some Gallic pride.
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