Like deja vu all over again
With its takeovers and soaring sales, 1996 looked like 1986. But for all its fever it lacked a theme, argues Richard Halstead
Sunday 29 December 1996
Yes, 1996 looked very like 1986, the year of Big Bang, Guinness's bid for Distillers, and the first appearance of be-braced yuppies. That year set the tone for the decade - conveniently forgetting the recessions, strikes and record unemployment also present in that era. Now, in an expanding economy flirting with the vestiges of consumerist excess, could 1996 shape our view of this decade?
Maybe not. To do so properly, 1996 would need an overriding theme, and while the City was at its busiest and most prosperous for six years, there was no one event to encapsulate the year.
Instead there were lots of themes. "Hands Across the Water" might be one: 1996 saw the largest takeover bid by a British company for an American company when British Telecom and MCI agreed to merge for around $20bn in a deal which would create the world's fourth largest telecoms operator by revenue. It followed BA's proposed strategic alliance with American Airlines in June, which if consummated will create the world's most powerful airline. On a no less ambitious scale, car parts maker Lucas merged with an American competitor, Varity, after surviving a possible hostile intervention from British engineering group BBA.
Hands were grasping in the other direction too. Three British regional electricity companies fell to US predators, leaving two independents in the sector. East Midlands agreed to a pounds 1.3bn takeover by Dominion Resources of Virginia, London Electric succumbed to Entergy's pounds 1.3bn offer in December, and in the only hostile action, CalEnergy won control of Northern Electric after intervention by the Takeover Panel. Cable & Wireless, Nynex, Videotron and Bell Cablemedia joined their telecommunications operations to form a challenge to BT.
But such an analogy could not begin to cover all the merger activity in 1996. "Hands across the backyard" candidates this year included Ciba's merger with Swiss pharmaceutical giant Sandoz to form Novartis, Boeing's takeover of struggling aerospace rival McDonnell Douglas, and Kvaerner's pounds 904m semi-rescue of Trafalgar House. The US media business consolidated with Time Warner's $7.5bn acquisition of Turner Broadcasting, owners of CNN; in the UK, MAI and United Newspapers surprised the City by merging in a pounds 3.2bn all-paper deal. Royal Insurance and Sun Alliance joined hands to form a pounds 6.3bn capitalised giant that will write over pounds 10bn worth of premiums, reflecting a year of consolidation for insurance.
Amid the merger mania, large segments of business got caught up in demerger mania. Lonrho, Hanson and Thorn-EMI announced full-scale break-up plans, while Rank, BTR, Williams, and P&O announced disposals to "refocus", with mixed results. A demerged EMI has become a bid candidate, while Hanson's break-up has tried to prove the parts are worth even less than the whole.
Part of the activity was down to new brooms in the boardroom. Andrew Teare took the reins at Rank, and Ian Strachan at BTR; Niall Fitzgerald succeeded Sir Michael Perry at Unilever, and Sir Peter Bonfield became chief executive of BT.
Budding public company bosses were thick on the ground. Their companies flooded on to the Alternative Investment Market (AIM), in its first full year of operations, and the market had 200 constituents by the end of the year, including leisure companies, wine warehouses, underwear makers and football clubs. There were a few scandals, forcing at least one company to de-list its shares and throwing a spotlight on the level of due diligence practised by City advisers to AIM companies.
Building societies like Alliance & Leicester, Northern Rock, and the Woolwich announced plans to convert their mutual status to that of a public company, precipitating windfall payments of pounds 750-pounds 1,000 to account holders. The Halifax battled with the logistics of posting 8 million flotation prospectuses to its members, while the Woolwich said its conversion plans would be unaffected by the departure of its chief executive after a dispute over expenses.
The privatisations of Railtrack and British Energy were considered two of the hardest state-owned assets to sell, but they turned out to be the most successful large flotations of the year. Railtrack shares have almost doubled since its May flotation, while British Energy shares have risen 50 per cent. However, the flotation of Orange, the glamorous mobile phone company, has not been so successful. The shares still languish 10 per cent below their issue price.
A few partnerships went by the wayside. USAir brought to an end its code-sharing agreement with BA in light of its proposed alliance with American Airlines and slapped its former partner with a lawsuit, and MCI was obliged to scale down its joint ventures with Rupert Murdoch's News Corporation after the bid from BT. Coca-Cola and Cadbury Schweppes ended their UK bottling and distribution venture, with Cadbury selling for pounds 620m.
Not everyone did the deals they were expected to do. Cable & Wireless could not find common ground with BT and broke off merger talks in April; Psion and Amstrad broke off discussions after disagreements on price; in August, Hays walked away from Christian Salvesen after failing to win support from the Salvesen board for its potential bid. Allied Domecq rejected demerger as a solution to its dismal share rating, and Guinness rejected a plan to bid for Grand Metropolitan. There were no mega-bids in the ITV sector: Yorkshire Tyne Tees enters 1997 as an independent company.
Perhaps most surprising among all this buying and selling was the small number of hostile bids. One old-style hostile battle was settled in February when Granada won control of Forte for pounds 3.8bn. Rentokil's bid for BET succeeded. But agreed bids - and joint press conferences - were a more common sight. The blockbuster hostile approach - like Shell bidding for British Gas or Roche for Zeneca - did not put in an appearance, much to the chagrin of bankers.
The capacity of Richard Branson to do deals and stretch his Virgin brand was undimmed. The Virgin kereitsu launched a pension product through its Virgin Direct arm, took a stake in Channel Tunnel rail services through London & Continental, won its own rail franchise, went into cinemas, started a bridal shop, launched an Internet service, bought a European airline and finalised plans to launch Virgin jeans and cosmetics in the new year. Richard Branson had time to lead the opposition to the alliance between British Airways and American Airlines, launch a London-Johannesburg service, launch a music label, and plan a round-the-world balloon trip.
1996 saw a few old problems solved. GEC cut the Gordian knot of its succession dilemma and appointed George Simpson to replace Lord Weinstock. Lloyd's hammered out a compensation deal for its out-of-pocket Names, and Eurotunnel struck a debt rescheduling agreement with its banks. The Channel Tunnel operator looked to be getting to grips with its pounds 9bn debt despite threats of bankruptcy proceedings from French shareholders and a fire in the tunnel that disrupted traffic. Kevin and Ian Maxwell were finally acquitted of charges stemming from the collapse of their father Robert's media empire, ending a four-year, pounds 25m campaign by the Serious Fraud Office to convict the sons of the late tycoon.
Elsewhere, new problems surfaced, particularly in retail. DIY retailer Wickes discovered that its accounts for 1995 had booked three years' worth of supplier rebates as one year's profits, overstating them by pounds 50m - chairman Henry Sweetbaum departed soon afterwards. Stephen Hinchcliffe's hastily-built Facia retailing empire crashed into receivership in June, throwing an unwelcome spotlight on the Sheffield-based businessman's allegedly irregular payments of up to pounds 20m from Facia to other private companies controlled by him. The Serious Fraud Office is now investigating both cases.
Some banks hit stormy waters. In June, Sumitomo Metals found pounds 1.2bn in losses generated by one of its traders, Yasuo Hamanaka, in 10 years of unauthorised trading in the copper market. Morgan Grenfell Asset Management, the UK-based fund management subsidiary of Deutsche Morgan Grenfell, dismissed Peter Young, one of its fund managers, and paid pounds 200m compensation to investors, after irregularities were discovered in his portfolio. Jardine Fleming's fund management arm in Hong Kong was fined pounds 815,000 and ordered to pay pounds 12m compensation after it was discovered that two of Jardine's fund managers had illegally diverted profitable share trades to a private account. Swiss banks came under pressure to come clean on the whereabouts of an estimated $7bn in gold deposited before and during the Second World War by Jews hoping to keep it out of Nazi hands and by the Nazis themselves. So far the Swiss banking ombudsman has discovered only $7,000.
The stock markets leapt to new heights. Wall Street rose 25 per cent, ignoring summer jitters and even a warning of "irrational exuberance" from Alan Greenspan later in the year. London rose by 11 per cent, outstripped by the major bourses in Europe (Frankfurt and Paris rose 25 per cent), but better than Japan's 3 per cent. Oil prices were up to $25 a barrel before settling at around $23.
The feelgood factor took hold in the UK, with consumer spending rising 3.9 per cent in November compared with the same month last year and house prices up by an average of 7 per cent. The number of homeowners still blighted by negative equity fell to under 500,000, half the numbers of a year ago, and the number of houses on the market leapt 50 per cent to 1.7m.
But the recovery in Europe stalled, with French and German unemployment hitting new highs. While governments across the EU struggled to meet the budget deficit and national debt levels demanded by the Maastricht treaty to qualify for European Monetary Union (EMU), more worries surfaced about the recovery-killing qualities of such austerity - and the wisdom of the single currency experiment itself. Germany succeeded in pushing through a "stability pact" to keep EMU nations in monetary lockstep after 1999, while the French and Italians used creative accounting to get their deficits down. The British failed to decide whether to participate in EMU, and bond markets worried about the strains placed on economies by a single currency.
The City of London worried about its future should Britain not participate in EMU. It thought the interbank euro settlements system - Target - might exclude British-based financial institutions from full participation, leading to a flight of multinational investment banks from London to Paris and Frankfurt.
Finally, plans were resurrected to turn Battersea Power Station into a pounds 500m shopping and leisure emporium within four years. The owners of the listed site, the Hwang family, plan to take advantage of the planning permission secured by Thatcher protege John Broome, who tabled a similar plan in 1986 only to see it fall to pieces four years later.
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