The same old media story, only slightly bigger

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The trail-blazing merger between MAI and United News & Media now looks a sure thing, with only a few pieces yet to fall into place. The shareholders of United have passed it overwhelmingly, while early indications from MAI shareholders, who must tender their shares to United, are that it will sail through. The Government obliged yesterday with confirmation that the merger will not be referred to the Monopolies and Mergers Commission. Ian Lang, President of the Board of Trade, also gave the green light to the controversial "warehousing scheme" used by the two companies to get around cross-media ownership rules.

The problem, of course, is that the merger looks no more convincing now than when it was announced early in February. The clear winners will be Lord Hollick of MAI, who seems to have kept his company out of the clutches of the dreaded Michael Green, and Lord Stevens, who could not convince anyone to buy the ailing Express titles and was obliged to seek a partnership in order to retain the City's confidence.

This merger does not create the kind of media giant the Government wants to encourage - integrated companies with the ability effortlessly to expand into new media, pay-TV, interactive services and the like. It is merely the marriage of two quite traditional sets of businesses. Tired newspapers and monopoly terrestrial television do not make exciting bedfellows.

The really bright combination would have been Carlton Communications and MAI, to create a big, southern-based ITV super-region, generating plenty of cash to finance new media acquisitions.

With MAI now stuck with United, and talking meekly about cross-promotion of new television ventures in the pages of the Express, the much-hyped consolidation of the ITV sector will be far less radical. We will probably get Granada/LWT taking on Yorkshire-Tyne Tees and Carlton taking on HTV (and maybe Scottish). The little players will be mopped up along the way.

Not much reward for all the effort, and certainly not enough to prepare for the next radical phases of change in the media: fragmentation of the television audience, the growth of digital TV, the introduction of direct- to-home Internet via cable and the like.

Worse, there are no signs that any British company will emerge from this strong enough to take on the world. No embryonic News Corporations or Disneys or Time-Warners are being moulded. Just slightly bigger versions of the same old story. What a missed opportunity.

Odds are on a cut in US rates soon

Figuring out what is happening to an economy - which economists like to dignify with the term conjunctural analysis - is difficult enough at the best of times. In the case of the US it has become almost impossible. The Federal Government shutdown resulted in a double whammy that hit spending directly in December and also delayed most of the important economic statistics. Then nature intervened in the shape of unusually foul weather in January.

These distortions coincided with a period of slowdown that was already difficult to interpret. As in Britain, most signals from manufacturing have pointed to sharply weaker growth. The housing market has been in decline for several months - and now faces higher mortgage rates, which are linked to long-term market interest rates in the US. Inflation has remained subdued. To confuse matters even more, late last year the Commerce Department began to publish new estimates of GDP which showed far lower growth than on the old basis.

On the other hand, the unemployment rate has been steady for about a year and consumer spending has held up pretty well as the economy has slowed. And some figures, like orders yesterday, suggest that the underlying picture might not be too bad anyway.

What will Mr Greenspan make of all this? The Fed chairman is famous for his skill and appetite for scrutinising the minutest details of the statistics. His recent Congressional testimony showed that the Fed is not forecasting a recession. Like many other economists, Mr Greenspan appears to think there will be a recovery from the current phase of weakness.

He gave few clues as to whether he thought this recovery would need the stimulus of another interest rate reduction or not, leaving the financial markets jumping up and down in reaction to every new statistic. But the odds are on a cut in the key Federal Funds rate at the end of March for two reasons. One, inflation looks extremely tame. Two, the canny Fed chairman would like to keep the economy ticking along nicely in Presidential election year. He will want to avoid the danger of having to make controversial decisions as the November poll date draws nearer - especially as job cuts have already become a campaign issue.

The right way to award share options

Share incentive schemes equal fat cats equal unbridled greed. That is the common perception of the use of shares as a reward at the top in British companies, and in some cases it is perfectly accurate, as the snouts in the troughs at some of the privatised utilities testified.

However, the Greenbury report on executive remuneration took pains to spell out last year that shares can actually be a useful way of paying people as long as the method is worked out properly and fairly.

Old fashioned share option schemes have their defenders, but the utility scandal gave them a bad name because of the way they often reward for the vagaries of market movements. Even before last year's events the mood among remuneration specialists had already swung towards outright gifts of shares as a simpler and more effective incentive.

The key principles, according to Greenbury, are that shares should not be awarded in excessive amounts; they must be held for at least three years; and there should be be "challenging performance criteria," preferably measured against a peer group of companies. But the report could have gone further and spelled out the need for boards to spread the largesse around more widely than their own pockets to create a sense of a fairness in their companies.

This does not mean going as far as Asda in handing share options to the checkout girls. But the wider and deeper the incentive scheme is in a company the more likely it is to work internally and to be seen to be acceptable to the outside world, including institutional shareholders.

BP's chairman, Sir David Simon, was a member of the Greenbury committee. The company's new incentive scheme extends the award of shares to more than 300 managers and sets targets based on the performance of seven other oil majors so it only pays in full when BP's shareholder return equals or beats the best. If the utilities had been as scrupulous, we would never have had the row about top pay in the first place.

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