Takeover bash heads for last drunken dance

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The Independent Online
It is hard to recall a time when the City was more alive with takeover talk than it is now. Much of this is more than just speculation. In the electricity industry it is possible to say with a degree of certainty that a fifth regional electricity company is about to be bid for. In the absence of a last-minute hitch, there is also likely to be a rival bid for Norweb before the week is up.

Nor is the feeding frenzy confined to the utilities. There is hardly a sector that is not affected by the present froth. Without doubt it will all end in tears, but for the time being the market races ahead and everyone is happy.

One reason for this head of steam is the unprecedented amount of cash companies have available for bids. So far this year, cash bids for quoted companies have amounted to a record pounds 15bn. Comparing companies across Europe, Morgan Stanley has found that the value of takeovers by UK firms in the eight months to August was nearly twice the 1994 level and easily beats the 1990 peak. In most other European countries takeover activity has fallen back this year.

The view that British firms will remain hungry for acquisitions is supported by more than just anecdotal evidence. Official figures released yesterday confirm that big companies are loaded with cash. The ratio of current assets to liabilities increased strongly in the second quarter of this year. For manufacturing companies the liquidity ratio has recovered from its recessionary dip to its high early-1990s level. Big companies outside the manufacturing sector are holding record amounts of liquid assets.

There is a limited choice of homes for this money. Leaving it in the bank is not attractive at current deposit rates. Nor apparently is new investment, which remains at a depressingly low level. Bereft of creativity after years of cost cutting, many managements seem to have run out of ideas. Business investment is lower than it was at the beginning of 1992 - mainly due to uncertainty about future demand, according to CBI surveys.

That leaves dividends, which have indeed been growing at a healthy clip and are likely to continue rising strongly. And, of course, takeovers, that byword for executive boredom. Together, they provide some support for share prices at present levels. But there is also a good deal of badly thought out "me too" activity in the present boom. The party may have a while to run yet but we look perilously close to the last all-too-drunken dance.

Now you see him, now you don't

One day you are riding high giving important speeches on the future of regulation. The next you are looking for a job. Such is life at Cable and Wireless, where Duncan Lewis, chief executive of the Mercury Communications subsidiary, unexpectedly quit yesterday, less than 24 hours after sharing a conference platform with Don Cruickshank, the telecoms regulator.

For Lord Young, chairman of C&W, it was not a question of losing one Mercury chief executive but of four in six years. This smacks, if not of incompetence, certainly of serious unsolved management and strategy problems.

Mercury is the company that failed to grasp the golden opportunity of privileged access to the UK telecoms market given by the Government in a deliberate attempt to stimulate competition with BT. It may have been an impossible task from the start, which was the theme of Mr Lewis' speech on Monday, when he blamed the Government and regulation for failing to deliver an effective competitor to BT.

It also has to be said, however, that Mercury has made a bad fist of a poor situation. Its main fault was in never properly deciding what it wanted to do with its licence. Its initial strategy - to cream off lucrative business customers - was always an approach unlikely to be tolerated for long by BT. It then set about chasing domestic business, only to withdraw. Call boxes too went by the wayside. Its market objectives became more and more determined by and on the hoof.

After three years of the vision thing with Mike Harris, whose Imagine programme to improve management foresight became a bit of a joke, Mr Lewis was brought in to cut costs. His appointment was always bound to be unpopular at Mercury, where he was perceived as a hatchet man, presiding over heavy job losses and withdrawal from the telephone kiosk market.

But for the City he was the man for the moment. His sudden departure raises a whole set of new questions about whether Mercury can ever get its strategy right under the stewardship of Lord Young, who runs a company notoriously worth little more than its 57 per cent stake in Hong Kong Telecoms.

If C&W cannot get Mercury right, how seriously should we take its pounds 825m investment in breaking into the German telecoms market? Rumours of a break- up bid have been around for ages. Nobody should hold their breath. Something has to be done, however, and it is not yesterday's raft of new board appointments.

Well done, but not well enough

Stuart Wallis, chief executive of Fisons, has done a remarkable job in reviving the fortunes of the once-troubled pharmaceuticals company, as yesterday's 40 per cent rise in profits so vividly confirmed. Unfortunately, he has probably not done enough to fight off the advances of Rhone-Poulenc Rorer, which by tweaking its offer a little looks like securing victory. The rise in interim profits was impressive in the light of the drugs group's troubled past, but most companies have a miraculous ability to uncover hidden stores of treasure when stimulated by a hostile bidder.

It was, after all, only in May that Fisons was telling shareholders at its annual meeting that "trading has been maintained at last year's level", a view confirmed at analysts' meetings in June.

Part of the answer lies in Japan, where a season of higher than usual pollen counts boosted sales of Fisons' anti-hay fever compound Opticrom. That was probably sufficient to add around pounds 5m to profits, compared with a more normal year. But as yesterday's 1p fall in the share price to 259p indicated, this is all becoming irrelevant to the main issue, which is whether RPR - or another bidder - can be persuaded to pay more for Fisons.

As time passes, the chance of a white knight stepping into the fray becomes ever more remote. The alternative, an international association that might provide Fisons with new drugs to revitalise the portfolio, is hard to achieve while ownership of the company remains in doubt.

Shareholders are unlikely to desert Mr Wallis for the offered price of 240p, but another 20p or 30p might well do the trick. Whether this would be enough to secure a Fisons recommendation is another matter. Mr Wallis is adament that the company is worth not a penny less than 300p a share.