Dragon casts shadow over BT's dream merger

IT'S A funny world. It was only a week ago that a bellicose Chinese government was firing live shells off Taiwan. Yet it seems probable that in the next few weeks British Telecom will strike a deal that will leave it with one-third of its assets subject to the whim of that same Chinese government.

BT's planned pounds 35bn merger with Cable & Wireless, whose jewel is its majority stake in Hongkong Telecom, has been greeted with near universal approval in the City. The fact that the Chinese take control of Hong Kong in 15 months has hardly registered.

Surprisingly little has been made of the political risk. Every telecoms watcher is bogged down in the arithmetic of the likely terms of the deal, or is speculating on which parts of the merged entity will have to be sold off to make the deal palatable to the Government and to the telecoms watchdog, Oftel.

There is an irony here. BT is desperate to expand the non-regulated side of its business. It is no fun operating in an environment in which you have to cut your prices by 7.5 per cent every year. Hence the emphasis on international growth. But by piling into Hong Kong, BT may find life every bit as regulated as it is back home.

Come July 1997 it will be a supremely restrained Chinese government that doesn't feel impelled to meddle in an industry as strategically important as telecommunications. And nothing in its recent record - from Tiananmen Square to the Taiwan Straits - suggests China is big on restraint.

Buying an asset in Hong Kong is not the same as buying it in America or Europe, and BT should be aware of that fact. C&W may be described as an Asian telecoms giant, but virtually all its operations and the vast bulk of its profits are concentrated in Hong Kong. It is absurd to suggest that this single deal would transform BT into the world's first truly global telecoms operator. At best it could prove a useful springboard into the fastest-growing economies in the world.

What it certainly would do is put a significant number of the enlarged BT's eggs in one basket. BT shareholders should be aware of the change. A deal could make BT a much more profitable organisation. It will certainly make it a much riskier and therefore more volatile investment.

From C&W's point of view, the advantages of a merger are more clear cut. It would resolve two ever more glaring problems. The first is the difficulty of coming up with a new strategy following the failure and confusion of its attempt to develop a "federation" of telecom alliances.

The second is the management vacuum created by the abrupt departures last year of its chairman and chief executive, Lord Young and James Ross respectively. There is little doubt that BT's two chiefs, Sir Iain Vallance and Sir Peter Bonfield, would take the helm of the enlarged group. There would be no need to find new bosses at C&W.

The regulatory hoops are difficult but not impossible. C&W's 80 per cent stake in Mercury Communications would certainly have to be sold off. But there are a number of prospective buyers. The US giant AT&T heads any bidders list, followed by GTE and several of the regional US operators. Deutsche Telekom from Germany and KPN from the Netherlands could also be interested. A combined BT/C&W would have to jettison some of its mobile phone assets. Germany, where both companies have operations, could be another headache. But none of these regulatory problems looks insurmountable.

The crunch will be to agree a price. The two sides have abandoned talks once before after failing to agree terms. The fact that their advisers are meeting again suggests that someone has given ground. The danger is that BT, whose share price has been weak recently, will be persuaded to give too much away.

This is a deal that C&W needs much more than BT. The terms should reflect that. BT should drive a very hard bargain, or walk away.

Uneasy peace at B&Q

IT WAS the sacking that never was. Everyone expected Jim Hodkinson, chief executive of B&Q, to be relieved of his tool-kit in the wake of last week's disappointing results. As far as I can ascertain, he has been at daggers drawn with Sir Geoff Mulcahy, head of the parent company Kingfisher, for months. Hodkinson was the only subsidiary head who failed to meet Mulcahy's tough performance criteria. B&Q profits have slumped. Underlying sales are flat.

Moreover, there has clearly been a difference of opinion on strategy. Hodkinson wanted to roll out aggressively the new warehouse format of B&Q stores - huge sites of 100,000 sq ft or more. This was despite a worsening in the overall DIY market and growing evidence that the warehouse stores were "cannibalising'' trade from B&Q's ordinary supercentre stores.

The two men seem to have patched up their differences at the last moment. The cautious Mulcahy has got his way: the roll-out of the warehouse format has been sharply scaled back.

I'm not convinced the peace will last. The relationship has never been perfect. In 1992, Hodkinson was pushed sideways, away from the core job of running B&Q. In 1994 he actually quit, only to return to the fold a few months later.

What is next, then, for B&Q? Spring has sprung and the next few weeks will be crucial for all DIY/gardening product businesses. The industry continues to suffer from overcapacity and margins are wafer thin.

One theory gaining currency is that Boots and WH Smith will bite the bullet on their disastrous Do It All chain, selling the few strong sites and closing down the rest. That would be good news for B&Q and for Sainsbury, which is busy absorbing the Texas chain - bought from Ladbroke - and is finding it harder than it anticipated.

It looks, however, like wishful thinking. True, WH Smith, under its new boss, Bill Cockburn, looks more than happy to take the inevitable pain. But Boots does not. It can afford to soldier on, comfortable in the knowledge that its cash cow, Boots The Chemist, can easily finance any losses at Do It All.

Its thinking is more likely to be: why throw in the towel now just as the housing market - the biggest influence on DIY purchases - looks as if it is perking up? DIY retailers should not be relying on Do It All to make life easier for them.

Suggested Topics
PROMOTED VIDEO
Sport
Mario Balotelli pictured in the win over QPR
footballInternet reacts to miss shocker for Liverpool striker
Voices
Sol Campbell near his home in Chelsea
voices
News
Kimi the fox cub
newsBurberry under fire from animal rights group - and their star, Kimi
Arts and Entertainment
Ella Henderson's first studio album has gone straight to the top of the charts
music
News
<p>Jonathan Ross</p>
<p>Jonathan Ross (or Wossy, as he’s affectionately known) has been on television and radio for an extraordinarily long time, working on a seat in the pantheon of British presenters. Hosting Friday Night with Jonathan Ross for nine years, Ross has been in everything from the video game Fable to Phineas and Ferb. So it’s probably not so surprising that Ross studied at Southampton College of Art (since rebranded Southampton Solent), a university known nowadays for its media production courses.</p>
<p>However, after leaving Solent, Ross studied History at the School of Slavonic and East European Studies, now part of the UCL, a move that was somewhat out of keeping with the rest of his career. Ross was made a fellow of the school in 2006 in recognition of his services to broadcasting.</p>
TV

Rumours that the star wants to move on to pastures new

Life and Style
fashion
News
Paul Nuttall, left, is seen as one of Ukip's key weapons in selling the party to the North of England
i100
Arts and Entertainment
Russell Brand labelled 'left-wing commie scum' by Fox News
TV
Arts and Entertainment
BBC's Antiques Roadshow uncovers a TIE fighter pilot helmet from the 1977 Star Wars film, valuing it at £50,000
TV

TV presenter Fiona Bruce seemed a bit startled by the find during the filming of Antiques Roadshow

News
people

Comedian says he 'never laughed as hard as I have writing with Rik'

News
ebooksAn unforgettable anthology of contemporary reportage
Sport
Steven Caulker of QPR scores an own goal during the Barclays Premier League match between Queens Park Rangers and Liverpool
football
Arts and Entertainment
artKaren Wright tours the fair and wishes she had £11m to spare
News
i100
Life and Style
Kirsty Wark and Camila Batmanghelidjh been invited to take part in Women Fashion Power, a new exhibition that celebrates the way women's fashion has changed in relation to their growing power and equality over the past 150 years
fashionKirsty and Camila swap secrets about how to dress for success
Arts and Entertainment
Joy Division photographed around Waterloo Road, Stockport, near Strawberry Studios. The band are Bernard Sumner (guitar and keyboards), Stephen Morris (drums and percussion), Ian Curtis (vocals and occasional guitar), Peter Hook (bass guitar and backing vocals).
booksNew book on Ian Curtis sheds fresh light on the life of the late singer
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Operational Risk Manager - Asset Management

£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...

Project Coordinator - 12 month contract

£27000 - £32000 Per Annum: Clearwater People Solutions Ltd: Our large charity ...

IT Operations Manager - London - £55,000

£50000 - £55000 per annum + bonus + benefits: Ashdown Group: IT Relationship M...

Banking Solicitor NQ+

Highly Attractive Salary : Austen Lloyd: NOTTINGHAM - BRILLIANT FIRM - You wil...

Day In a Page

Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
Premier League coaches join the RSC to swap the tricks of their trades

Darling, you were fabulous! But offside...

Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

How to dress with authority

Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

New book on Ian Curtis sheds fresh light on the life of the late singer

'Joy Division were making art... Ian was for real' says author Jon Savage
Sean Harris: A rare interview with British acting's secret weapon

Sean Harris: A rare interview with British acting's secret weapon

The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

Tim Minchin interview

For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
Boris Johnson's boozing won't win the puritan vote

Boris's boozing won't win the puritan vote

Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

Tim Wheeler: Alzheimer's, memories and my dad

Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album
Hugh Bonneville & Peter James: 'Peter loves his classic cars; I've always pootled along fine with a Mini Metro. I think I lack his panache'

How We Met: Hugh Bonneville & Peter James

'Peter loves his classic cars; I've always pootled along fine with a Mini Metro. I think I lack his panache'
Bill Granger recipes: Our chef's heavenly crab dishes don't need hours of preparation

Bill Granger's heavenly crab recipes

Scared off by the strain of shelling a crab? Let a fishmonger do the hard work so you can focus on getting the flavours right
Radamel Falcao: How faith and love drive the Colombian to glory

Radamel Falcao: How faith and love drive the Colombian to glory

After a remarkable conversion from reckless defender to prolific striker, Monaco's ace says he wants to make his loan deal at Old Trafford permanent
Terry Venables: Premier League managers must not be allowed to dictate who plays and who does not play for England

Terry Venables column

Premier League managers must not be allowed to dictate who plays and who does not play for England
The Inside Word: Brendan Rodgers looks to the future while Roy Hodgson is ghost of seasons past

Michael Calvin's Inside Word

Brendan Rodgers looks to the future while Roy Hodgson is ghost of seasons past