Serious news finds a place in the silly season

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The Independent Online
For the dog days of August, this has been a good week for financial news. Perpetual threatened to vote against the life assurance merger between United Friendly and Refuge, claiming the terms were too cosy and, in any case, unfair on Refuge shareholders; Clare Spottiswoode announced a climbdown on proposed price controls for British Gas, which actually turned out to be not much of a compromise at all; the stock market reached a new all-time high - not that there were many in town to notice it - as the Bundesbank threw caution to the winds and cut the German repo rate to just 3 per cent; tobacco industry shares went up in smoke; and then, finally, there was that elusive brewing merger, which was finally meant to happen yesterday and then finally didn't, or at any rate not in time for anyone in the City to know about it as they rushed off early for the long weekend break.

Herein lies my theme. It's a funny thing about August, but even when there is important and serious news to be reported there is an awful temptation to treat it in a flippant and trivial manner. And I'm not the only one. Take the shenanigans over the United Friendly/Refuge tie up. When I phoned Refuge's financial advisers, Phoenix Securities, to ask about Perpetual's concerns, they put it all down to the silly season. "I wouldn't take it too seriously if I were you", an ever so annoying representative purred. "It's mainly down to the fact that you chaps in the press have nothing to write about in August and fund managers not a lot to do". So that's why Perpetual, one of Refuge's largest shareholders, is so worked up about it all, is it? Just end of summer madness. Well I never.

No one is suggesting that Refuge and its advisers deliberately went out to short change their own shareholders. That would indeed be ridiculous. But it does seem to me that Perpetual may be right in accusing them of not driving a hard enough bargain. The nub of the allegation is this: that in their haste to get the deal done, Refuge directors allowed themselves to agree too small a share of the company's pension fund and orphan estate surpluses on behalf of their shareholders. Now Refuge's advisers are absolutely right to claim that these are difficult and complex issues. But this is shareholders' money they are playing with and their failure adequately to explain how these sums were arrived at, or, in the case of the pension fund surplus, even what the figure is, makes one just a little bit suspicious. At the very least it smacks of complacency.

The term "silly season" took on a whole new meaning when Clare Spottiswoode rose to her feet to announce "final" proposals for gas charges, for that is how British Gas likes to characterise her - as a giddy, giggling schoolgirl with not too much up there to guide her.

In fact, whether you think her new controls oppressive or not, she's actually been rather clever about it. The new proposals gave the impression of being a very considerable retreat on the position originally taken up last May. Whether this was the intention is hard to tell, but it was certainly the effect.

John Humphreys railed against her on the BBC's Today programme, accusing her of unnecessarily frightening British Gas shareholders with her first set of proposals when all along they were obviously too harsh to be realistic. But when you actually crunch the numbers, the concessions don't seem to make a lot of difference. According to British Gas, the company will be just pounds 400m of revenue better off over the five-year life-span of the controls. That may seem like a lot but against total revenues of pounds 16bn it hardly looks like winning the pools.

British Gas must be sorely tempted to take its case to appeal, for whatever the Monopolies and Mergers Commission do, it cannot be any worse than Ms Spottiswoode is proposing. But in the end I suspect it won't. The MMC is unlikely to make things any worse for British Gas, but by the same token it is hard to see why it should want to make things any better. Ms Spottiswoode may be about to achieve the near impossible - a very substantial reduction in bills for customers and, because she has been seen to give ground, a recovery in the British Gas share price at the same time. Not so silly after all.

It was nice to see that old joke about the man with the broken watch being revived in the pages of the Financial Times this week. "Well, at least it's right twice a day", he is able to say. I feel a bit like that about the stock market. I've been a bear for quite some while now and one day I'll be right. For the moment, I'm badly wrong; shares keep on rising with further cuts in European interest rates the latest driving force. The truth of the matter is, however, that they are rising in a vacuum. There is hardly any buying and selling. Dealers may be right to believe there's nothing on the horizon to cloud this gentle upward climb, but then this is August and it's hard to think ill of the world. It is at times like this, with everyone half asleep, that danger creeps up unsuspected. When the pros return, things could change markedly. It will be either politics or Wall Street that changes them.

Then there is that wretched brewing merger we've been waiting for all this time. Wretched, not just because it has taken so long to negotiate, but also because the only people who really want it are the participants - Bass, Carlsberg and Allied Domecq. For the rest of us, it cannot be anything other than bad news, higher prices, less choice. Fortunately for the participants, this is a merger that is going to be vetted by the British competition authorities, not in Brussels, where it might have got a harder time.

When it comes to brewing, the Office of Fair Trading and the Department of Trade and Industry are already hopelessly compromised, for they have already allowed the not dissimilar consolidating merger of Scottish & Newcastle and Courage. Provided the new Bass combine is prepared to negotiate away just a little of its new found market power, it is hard to see how the DTI can logically stand in its way.

I've written about this merger before and in so doing I cited the example of Australia, which has allowed its major brewers to consolidate into just two. A reader writes to point out that with 114 different beer brands still made in Australia, you can hardly complain about lack of consumer choice. The fact that they all taste much the same, that prices are higher, and that in most of Australia the choice is limited to just a couple of brands, is, I guess, neither here nor there.

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