Outlook: Not much will save Northern from the marauders
Thursday 05 January 1995
First, however, it has a number of hurdles to surmount. Northern's articles of association, which prevent any investor owning more than 15 per cent of the shares, have to be changed. Since Northern is refusing to call the necessary EGM voluntarily (spoilsport), Trafalgar is having to muster sufficient support from outside shareholders to requisition one.
Another potential hurdle is Professor Stephen Littlechild. Trafalgar's advisers have already managed to alienate the electricity regulator by claiming that the offer of a £20 rebate to Northern's customers had put him on side. Not so, says a highly irritated Professor Littlechild. If Trafalgar believes it can bounce Offer into submission, it has another think coming.
And finally there is the Office of Fair Trading, which may want to refer the bid to the Monopolies and Mergers Commission on the not unreasonable belief that if it allows this one to go through uncontested, it will open the floodgates to all the others. Labour and some other politicians have already said this is far too important an industry to get gobbled up without full public scrutiny. Here is just a taste of the ever-so-predictable line Jack Cunningham, the shadow trade and industry secretary, was peddling yesterday: "Mr Heseltine's silence may well be taken as a green light for further attempted takeovers. The whole question of the Government's privatisation of the electricity supply is being brought into question."
The precedent of British Aerospace's bid for VSEL, which was referred against all the odds on national interest grounds, has led the stock market to believe reference is a real possibility.
Even so, it is hard to see a rational case for such a course. Electricity managements are despised by virtually all. Few would shed a tear over their demise. Certainly there is no competition case for reference. Were it not for the suspicion that the Trafalgar bid is little more than a gigantic tax scam, ministers might even welcome the bid. Once these companies are absorbed within faceless conglomerates, they lose much of their ability to embarrass ministers with their penchant for corporate greed.
The likelihood is, then, that all that work being undertaken by Warburg will have to be used. Much of it will no doubt hinge on discounted cash flow projections and the other mumbo jumbo that has become the stuff of bid defences. That of itself won't do the trick. Nothing short of Danegeld will save Northern from the marauding hordes - a special dividend of, say, £3 a share might just about see them off. Whether Northern can afford it is another thing. Professor Littlechild might also insist it be matched with a comparable offer to customers. Not an easy wicket, as they say.
British Gas learns lesson the hard way A more dramatic or astonishing turnaround in public perceptions of an important public company would be hard to imagine. Believe it not, little more than six months ago, British Gas was held by surveys to be second only to Marks & Spencer in terms of public regard. Today it is one of the most hated and derided institutions in the land, demolished by a public relations fiasco that shows little sign of abating. The boast that from a customer's point of view it enjoyed a rating higher than any other utility was no idle one.
How then has British Gas reached, in a matter of a few months, a state where it needs a special working party and Sir Tim Bell to find ways of salvaging its image? The phenomenon is easy enough to explain, less easy to forgive in a supposedly professional management. Cedric Brown's 75 per cent pay increase, revealed in November, was plainly the start, but other companies have been through that particular mill and suffered remarkably less pain. The incompetence was in the way the announcement was handled.
The real damage came later, however. In short order there came an increase in gas prices, the announcement that those paying by direct debit would get a 10 per cent discount though not those paying promptly in cash, a pay reduction for some staff in the showrooms, and cuts in spending on safety checks. The coup de grace came with the axing of bill paying and information points from the gas showrooms. All these things would no doubt have be handled better had they not been leaked first.
Certainly all of them seem to make reasonable commercial sense. Neither the City nor the regulator, Ofgas, has any problem with them. Nothing, however, can make up for the loss of public esteem they have caused. British Gas is learning the hard way that it is much easier to lose a reputation than gain one.
It is easy enough to explain how it happened. It is not just on the public relations front that British Gas is in turmoil. Chopping the UK gas business into five separate operations - little empires each with their own problems to solve and each with a desire to shine - appears to have deflected British Gas from the main task of paying attention to its customers. For a company that faces competition in its domestic marketplace for the first time next year, the customer should have remained king. In its haste to respond to commercial pressures, British Gas seems to have forgotten this ever so important little principle.
What next then? With luck British Gas will have learnt its lesson. The remarkable thing about whole affair is that it needed to learn it at all.
Eurotunnel starts to turn the corner Eurotunnel, for so long an investment dog, is in danger of being rehabilitated. Throughout last year, the company peered into the abyss; now it is a new year share tip in the media and the City. Things are looking better than for years. Yesterday marked another positive milestone. News that Le Shuttle services are now running around the clock, and that 12,000 passengers booked tickets in just two weeks, are further confirmation that things are on the turn.
Investors should be wary of overdoing the good news, however. Eurotunnel is still in bad shape. Although all commercial services are now up and running, 1995 revenue forecasts will be badly hit by the delay in their introduction. The sudden rush to buy Le Shuttle tickets may have more to do with novelty value than anything else. The real test will be in the summer when the war with the ferry companies, and the airlines, begins in earnest.
The summer months account for two-thirds of ferry companies' profits and they are not going to give up revenues without a fight.
Eurotunnel cannot afford a price war. To finance £8bn of debt, Le Shuttle needs to meet tough passenger targets.
Eurotunnel has missed so many forecasts in the past that new ones must be treated with scepticism. Eurotunnel seems to be heading in the right direction, but the jury is still out.
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