Everything that you need to know about 1997
`The utilities are going to have a really bad time of it. The windfall profits tax will be designed in a way that chiefly hits the water and electricity companies'
Saturday 28 December 1996
What this means for financial markets is a more difficult question to answer. Certainly Mr Blair as prime minister will mark a quite decisive break with Britain's imperial past and the government can as a consequence be expected to become more positive about Europe.
That doesn't mean we'll be in the first wave of those joining the single European currency, which will be confined to Germany, its satellite states, and France. Sorry, Italy, not yet. Sterling will retain some of its recent strength, if only because interest rates will be rising strongly to choke off runaway demand and to counter-balance Labour's spending plans. Don't expect markets to be quite as sanguine about a change of government as Gordon Brown would like to think. To establish its credibility with markets, New Labour is going to have to prove itself and that's going to mean tough choices on spending and taxation.
The stock market will go nowhere; Wall Street comes seriously off the boil; and, yes, Tokyo remains in the doldrums - again. This is not going to be the year of the great Japanese revival. Why should it be? Japan is now a mature economy. Even at this depressed level, shares remain extremely overvalued against other stock markets. Serious difficulties will arise during the handover in Hong Kong. There will be bloodshed and an international crisis, further undermining confidence in international markets. No more exuberance in stock prices.
What happens on the domestic front depends on the extent to which Labour follows stated policy, such as it is. One thing is not in doubt, however; the utilities are going to have a really bad time of it. The windfall profits tax will be designed in a way that chiefly hits the water and electricity companies. On top of that, they can expect much tougher regulation including the introduction of a formalised system for sharing profits between customers and shareholders. Shares in companies that remain independent can be expected to be reduced to the status of bonds.
There will be a revival of the corporate state under Mr Blair. Particularly favoured status is given to British Telecom, BSkyB, the BBC, and BP. BT's deal with Labour - to wire up all public institutions to the superhighway free of charge in return for being released early from the ban on broadcast entertainment - is enacted, causing a flood of litigation from cable operators, which claim they would never have set up their rival networks had they known this was going to happen. The relationship between BT, Rupert Murdoch and Mr Blair becomes progressively stronger causing growing unease in media and political circles.
Competition policy will be operated with a light touch, despite stated intentions on this front; those that believe Labour will kill off the deal-making industry will be proved wrong. Corporate finance departments continue to thrive, finding ever more ingenious ways of doing things.
Pearson and EMI will flirt with, and possibly consummate, a merger. EMI's chairman, Sir Colin Southgate is a friend of Pearson's chairman in waiting, Dennis Stevenson, Sir Colin is known to want to take EMI into other forms of intellectual property - publishing in particular - and both companies are under threat of hostile takeover. What could be a more natural fit?
There will be at least another two insurance mergers. Scottish Widows is demutualised via a takeover from a leading English clearing bank.
And now for the silly but plausible predictions. Sir Leon Brittan will retire from the European Commission to become a highly paid international gopher for Goldman Sachs. That creates a British vacancy at the Commission and who better to fill it than Kenneth Clarke? He'll need a job shortly. Eddie George will be persuaded to take early retirement and Gavyn Davis, senior economist at Goldman Sachs, is appointed Governor. Don Cruickshank will survive as director-general of Oftel, as will his opposite number at Ofgas, Clare Spottiswoode, but the other regulators, Ian Byatt (Ofwat), Stephen Littlechild (Offer), John Bridgeman (Office of Fair Trading) and John Swift (the rail regulator), will go - all to be replaced by high- profile political animals.
I make no apologies for returning to the high drama surrounding the closing stages of CE Electric's bid for Northern Electric. Nobody emerges well from the episode, least of all the Takeover Panel, which once again comes out of the mire looking as awkward and out of place as a country squire at a Spice Girls party. I've yet to get to the bottom of why the Panel decided to extend the bid, thus allowing the Americans to gain control, but it would appear to be as a kind of punishment to the defending team.
Not that this is at all apparent from the Panel's statement in which BZW is exonerated over the little matter of the undisclosed pounds 250,000 fee. Even if we had known about this fee, the Panel says, we still would have allowed BZW to make all those defensive share purchases in the market. "It wasn't a bung to BZW for the purchase of the shares, honest," the Panel protests. So why extend the bid, allowing the Americans to gain control? "Oh, that's because they didn't tell us about it." Yes, well.
The lawyers were just dying to crawl all over this one. The Americans were in no mood to abide by the Panel's decision, should it have gone against them, and the writ was already under preparation. By doing what it did, the Panel avoids an embarrassing court challenge to its authority and BZW escapes without even the slightest reprimand. And don't you dare suggest we are open to criticism, warns Martin Taylor, chief executive of Barclays, BZW's parent company. For how much longer can the City get away with messy compromises of this sort? By any stretch of the imagination, this one's a classic. Northern's been punished but its advisers have not been reprimanded.
The truth of the matter is that self-regulation is as unsatisfactory in takeovers as it is in any other walk of life. Inevitably, the self- regulating organisation operates for the benefit of the members it regulates, rather than the wider public interest. However fierce the battle of the moment, the interests of the whole are generally best served by sweeping these questionable episodes under the carpet. Overt criticism is rarely made and even more rarely acted upon. That's one thing that won't change much next year. Of that we can be certain.
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