BAe's chief executive, Dick Evans, has done a superb job in rebuilding City goodwill for his company since the dog days under Professor Sir Roland Smith. He'd be crazy to throw it all away by bidding too much. And as we report on page 1, institutional investors are pushing to ensure he does no such thing.
The betting must now be on GEC walking away with the prize. However, according to one common theory doing the City rounds, the entire battle for VSEL has just been a sideshow to the main event. By taking over VSEL, Weinstock is merely tucking in to his appetiser. His main course is BAe itself.
The theory goes like this. Weinstock fiercely resented the nationalisation in the 1970s of the military aircraft division of GEC - now part of BAe. Ever since he has nursed a grievance over the confiscation of his toy and he remains determined to get it back. For years that was impossible. He would have been stymied on monopoly grounds. And friendly talks with BAe never came to anything.
But now, there could be a real opportunity to bid for BAe. Defence procurement policy has changed dramatically. Neither the Ministry of Defence nor the Department of Trade and Industry seem much interested in nurturing competition among arms suppliers. Instead the aim seems as much to be about creating national champions - monopolies at home, yes, but giants capable of competing internationally. Michael Heseltine's decision to ignore the Monopolies & Mergers Commission majority report and clear GEC's bid for VSEL shows just how far this thinking has gone. Indeed, I understand the only serious demand for an MMC investigation in the first place came not from the two ministries most closely concerned, but from the Treasury, which was concerned about GEC's occasional tendency to go over budget on cost-plus contracts, and the Scottish Office - alarmed about the future of GEC's Yarrow shipyard.
For once, a GEC bid for BAe might not be laughed out of sight. But Weinstock would have to move quickly. A Labour government would not look so kindly on any merger. Moreover, Weinstock might not be in the GEC chair for much longer. He has already postponed his retirement once. He is 71 next month.
At least one GEC watcher believes this is the reason for all the haste with VSEL: the offer document went out within 24 hours of the bid being tabled. Weinstock needs VSEL out of the way so he can concentrate on the main prize. An inevitable MMC inquiry would anyway delay any bid by six months. Realistically, he needs to pitch his bid at more than pounds 3bn and launch it well before Christmas.
Fantasy? Probably, but to repeat, it never pays to underestimate Arnie Weinstock.
Take your cable partners
THE CITY lawyers and merchant bankers are licking their lips. The cable television industry, they reckon, is heading for serious consolidation. The number of cable operators has already shrunk from 52 a decade ago to 16 today. Now come the mega-mergers to create the handful of giants expected to dominate the industry into the next century. The pairing up began last week when the quoted TeleWest tied up with SBC CableComms. The merged company will have the potential to reach four million British homes and will be valued at more than pounds 2.3bn, more than Carlton Communications, the biggest terrestrial TV company.
Everyone else in the industry is now talking to everyone else, each trying to size up suitable partners. It's going to be like a teenage party, according to one gleeful adviser I spoke to last week. One minute everyone's single; the next there are wall-to-wall snogging couples and anyone not paired up feels very left out.
Sheer size yields many savings in the cable industry. Whether negotiating with road diggers or programme suppliers, the big cable operators can force a keener price. But the real savings come with contiguity of franchises and the scope for cutting out the middle man in telephony, namely British Telecom. Also, with the technology moving so fast, it is the big boys who will set the standards which later become universal.
The competition issues are negligible. Each cable franchisee already operates a total monopoly in its region. BT will doubtless squeal, but since the cable companies so far account for less than 1 per cent of telephony in this country, no one is likely to listen.
A shabby affair
THE ROW over the March privatisation of the last chunks of National Power and PowerGen must be baffling to anyone without a City background. In essence, the Government is being accused of "insider dealing" because it knew days before the sale that some bad news was on the way which could reduce the value of the shares. It chose to keep stum and press on with the share sale regardless. The hapless buyers bought the shares only to see their price plunge when the electricity regulator, Stephen Littlechild, issued a warning on prices.
It's a pretty shabby affair. The Government and its advisers, Barclays de Zoete Wedd and Kleinwort Benson, seem to have miscalculated horribly. If they thought Littlechild would have no impact they were extraordinarily naive.
The drafting of the Companies Securities (Insider Dealing) Act means this is not insider dealing in the legal sense. It could be construed as market manipulation under the Financial Services Act, but here the Government has Crown immunity from prosecution.
There has to be an outside inquiry. In effect more than a million small shareholders appear to have been shortchanged. They need to be compensated. It's not good enough to argue, as Ken Clarke did, that the shares have recovered anyway. But for the Littlechild review, they would doubtless be higher still.
But I can't help reflecting that the beneficiaries of the Government's idiocy are you and I. The aim was to maximise the return to the Exchequer, and by extension to taxpayers. The Stock Exchange was absolutely right to protest publicly. If only it were one-tenth as energetic in cases of suspected insider dealers cheating for their own benefit.