Pac-Man defence finally takes the stage

The choice is between two underperformers that have consistently matched each other in disappointment

ACCORDING TO the records, the Pac-Man defence has never been tried before, in Britain at least. Named after a once famous and now ancient computer game, the idea of which was to turn round and gobble up the little monster that was chasing your little monster, plenty have talked about using it as a way of seeing off an unwanted takeover bid, but nobody has actually attempted it, less still pulled it off.

Judging by Marston Thompson & Evershed's pounds 330m bid for Wolverhampton & Dudley Breweries, you can see why. The Stock Exchange was so astonished by the announcement that it felt obliged to check this wasn't a mistake or a hoax before posting it on the screen. Wolverhampton & Dudley had been bidding for Marston in a mixture of shares and cash. Now Marston is bidding for Wolves, also in shares and cash.

That caused Wolverhampton's shares to climb sharply on the stock market yesterday, greatly enhancing the value of its offer for Marston, which in turn enhances the value of its offer for Wolves. In these circumstances, it becomes very hard to see what fair value for the combined group is, or indeed how it should be split between the two sides.

Harder still for investors is to judge between the two alternative strategies, for neither company has exactly covered itself in glory in recent years. The choice is between two underperformers that have consistently matched each other disappointment for disappointment.

The Marston strategy does at least have a certain vindictive style about it. If successful, Marston will lay waste to its attacker's territory, sacking its management and many of its employees, closing its two main breweries and selling many of its pubs. Most insulting of all, it plans to contract out the brewing of Wolves' best selling Banks's bitter and mild to Bass. Sweet revenge indeed.

Unfortunately, it is not clear that any of this will do much for investors, many of whom are shareholders in both companies. On the other hand it certainly ratchets up the investment banking and legal fees. Both sides can now presumably charge for a bid as well as a defence. What a racket.

PERHAPS IT IS the launch of the euro with its promise of ever cheaper money, but this latest cut in interest rates has, as never before, had many of us scurrying away to our filing cabinets to check up on our mortgage and savings accounts. All too often, the result has proved a disturbing one. What looked like such a great deal when we signed up all that time ago now turns out to be a real stinker. What's more, it is going to cost us an arm and a leg to chuck it in and sign up with something more modern and user-friendly.

For instance, a colleague finds himself locked into a fixed-rate mortgage which has come to cost more than the better variable ones; he faces big redemption penalties if he tries to shift. Meanwhile, my wife has discovered that the Cheltenham & Gloucester 90-day notice account which she opened for a small inheritance a few years ago, now pays less than the same organisation's instant access account. To disentangle herself, she has to give three months' notice or again face a very hefty withdrawal penalty.

In many cases, however, it is merely inertia which makes us stay with what has plainly become a disadvantageous product. It is often said that it is more common to get divorced than shift your bank account; the same is largely true of savings and borrowings. Once signed up, we generally can't be bothered, or lack the time, to change.

Traditionally, the financial services industry has relied on this inertia, laziness, misplaced loyalty, call it what you will; it's one of the reasons our banks, building societies and life assurance companies manage to remain both inefficient and highly profitable at the same time.

But things are changing. New low-cost competitors are transforming the landscape, both for savings and mortgages, and suddenly it seems possible to get genuine value for money. The industry may not be able to rely on inertia for much longer.

The launch of the euro has added fresh impetus to the search for value, and that's possibly what's concentrating minds so much right now. Unprecedented numbers are expected to change their mortgage and savings providers over the next year. As it happens, the euro's promise of very cheap mortgage deals is something of an illusion. According to John Charcol, the independent mortgage advisers, it is hard to get a mortgage rate on the Continent of much better than 5 per cent, despite the fact that the Euroland base rate is only 3 per cent.

If our own financial services industry leaves something to be desired, plainly the Continental one has got a very long way to go, for in Britain it is now possible to get a variable rate mortgage at very close to base rate.

In any case, if you are prepared to factor currency risk into your mortgage payments, it would make more sense to take out a loan in Japan, where the base rate is just a quarter of a percentage point. Don't forget, however, that the so-called "yen carry trade" - that is borrowing cheap in Japan to lend more expensively in the US and the UK - nearly toppled some of the world's biggest hedge funds last autumn. Currency speculation is best left to the professionals.

Meanwhile, there are some quite astonishing deals on offer back home, by historic standards at least. With the outlook for interest rates so benign, some fixed-rate deals are already close to or lower than most euro mortgage rates. West Bromwich is offering 4.99 per cent fixed for two years and 5.25 per cent for five, with no trailer penalties. Savills Private Finance has launched a two-year fixed rate mortgage at only 3.49 per cent. There is no such thing as a free lunch, of course, and many of the most attractive looking deals carry quite steep signing-on fees and redemption penalties.

All the same, the outlook for borrowers has rarely looked so good. Standard Life Bank, a new entrant to the mortgage market, is offering a flexible variable rate mortgage at just 6.55 per cent with a discount of 2 per cent for the first six months. By the time that discount lapses, the variable rate is bound to be much lower. Savers fare less well in this downward spiral in interest rates, but you can't have everything, can you?

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