Some mutual dinosaurs are best left alone
COMMENT: `The City loves nothing more than a fad. If it works for building societies and mutual insurers, why not for every organisation owned by its members?'
Friday 28 March 1997
Merchant bankers spend their lives dreaming up ways to make money by persuading their clients to unlock value from slumbering under-performing institutions. And the City loves nothing more than a fad. If it works for building societies and mutual insurers, why not for every organisation owned by its members? Up-front cash payments are an easier language to understand than the nobler concepts of non-profit making and mutuality. So perhaps there is no smoke without fire.
In some respects these organisations ought to be ripe for a spot of corporate action. The AA is a case in point. It is 91 years old - not much older than some of those who sit on its ruling committee - and if its 9 million members ever cared to study the report and accounts they might conclude that more could be done to sweat the assets.
In 1995 it made a deficit of pounds 29.5m on turnover of pounds 523m. Admittedly, much of the loss was due to a pounds 36m charge to cover the closure of half its retail chain and the refurbishment of its Basingstoke HQ.
Nevertheless, the chairman's report to members does not exactly ring with confidence. It was a year, he confesses, when the demands of the membership "threatened to overwhelm us", not to mention the onslaught from the direct insurers and rival roadside breakdown organisations.
Neither has the RAC been any great shakes on the financial front, running up a deficit of pounds 12.4m in 1995. But its ownership is less transparent, the only bit which is owned by members being the RAC Club.
The reaction from both organisations to the idea that they might be bid for is touching: we don't want to be taken over, ergo we aren't going to be taken over. The Co-op started off saying much the same and has ended up hiring one of the biggest bruisers in the Square Mile to defend it.
It may be that the AA and the RAC do not have the sort of hidden assets that Mr Regan wants to get his hands on. Apart from being wedded to member- ownership, they also have a social function that does not fit easily with commercial control.
But just in case you still feel tempted to go for a drive and do some carpetbagging this Easter weekend, remember that the AA has closed down 97 of its shops.
When the EMU posturing has to stop
It has been a pretty normal week on the path towards the single European currency. Italy failed to win agreement on a decision to delay the whole process, and passed an emergency budget to help bludgeon its government deficit below the Maastricht ceiling. German unions protested once again against the industrial restructuring that is going on using the EMU process as an excuse, with the steel industry the focus this week. One British businessman came out against the UK joining and another came out in favour. Meanwhile, John Redwood published his anti-Euro book in a bid to get the issue back on to the election agenda.
The safest prediction to make about the whole process is that there will be a lot more weeks like this, with nothing decided but a whole load of posturing and politicking. The triggers for real decisions - whether to go ahead on time, and who gets in - will come much later this year and early next year.
There are two timetables, political and economic, either of which could provide the occasion for a postponement of EMU. The key political events will be the French parliamentary and German regional elections next March, and the German parliamentary elections in October 1998. Ahead of the latter will come speculation about whether or not Helmut Kohl intends to stand down.
Politics matters hugely for EMU, and the geo-political landscape has changed completely since the late 1980s. As a helpful new report from Paine Webber comments: "A route to integration which appeared so straightforward when Yugoslavia was united and Germany wasn't has lost its signposts."
The decisive economic events will pre-empt the politics, however. In November the European Monetary Institute and EU Commission will issue their annual convergence report, and the following March their recommendations as to which countries do and do not meet the Maastricht criteria. November's likely pronouncements, which will depend partly on how strongly the continental economies are recovering this year, are going to become both the focus of the financial markets after the summer holidays and the basis for politicians to change their minds, if they are going to.
For now, there is nothing for the markets to get a real grip on. A budget here, a strike there, present no more than short-term trading opportunities.
Cruickshank returns, cosh in hand
Fresh from last year's almost continuous regulatory skirmish with British Telecom, Don Cruickshank is at it again, drafting new powers to prevent BT using our phones bills as a "cash cow" to fund its US ambitions.
But how likely is it that BT's domestic customers will be sacrificed in the race to expand Concert, the joint company BT is forming with MCI?
As the director general of Oftel himself admits, the expansion of competition and choice in the UK market means consumers would immediately desert to more desirable carriers. And by 2000 the chances are that most homes will have at least two other operators to size up apart from BT.
In addition, there has been nothing so far to suggest overseas campaigns will prove such a drain on BT that it has nothing left in the corporate wallet to spend back home. Costly the MCI deal may be, but even with the pounds 2bn special dividend paid out this autumn BT's debt levels are still easily manageable. True, MCI wants to get into the $100bn local US phone market, but the investment plans outlined so far look affordable from its own balance sheet resources.
Should he gain a new set of magical powers it is hard to see in what circumstances Mr Cruickshank would use them. Yesterday he emphatically denied the proposals would mean controls over BT's investment programme.
The principle is that BT's service must improve at the same rate as a comparable carrier in the US. But without specific investment targets this comes down to subjective judgements. Mr Cruickshank himself admits it would be a harder decision to call than anything he has had to do so far.
The real agenda here is all about power - reminding BT that the core of its business is still rooted in its utility background - and both sides know it. Mr Cruickshank seems determined to keep BT under the cosh until the last set of price controls run out in 2001.
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