This merger is not worth going to war over
Friday 18 July 1997
Here's why. Although the European Commission has stuck rigidly to its line that Boeing's takeover of McDonnell Douglas will distort competition, it will do no such thing. The European Commission has spotted an opportunity to squeeze maximum advantage out of the situation for its own jet champion, Airbus Industrie, and is playing its hand accordingly.
In truth, there are really very few anti-trust considerations involved, as the US Federal Trade Commission has already ruled. True, the merger would increase Boeing's share of the commercial airline market but only by 4 per cent. Moreover, even after swallowing up McDonnell Douglas, Boeing would still be left with a smaller share of the market than it enjoyed 10 years ago, thanks to the inroads Europe's Airbus Industrie has made.
When the Boeing deal was first unveiled there was barely a squeak from Airbus. Indeed the view trickling out of Toulouse then was that the merger might actually work to its advantage by creating a more orderly market and reminding the world's airlines that if they still wanted a choice then Airbus was the only other player in town.
Since then there has been much comment in Brussels about how Boeing's scope for sweetheart exclusive supply deals with airlines would be enhanced. But will carriers really want to freeze Airbus out? The lesson of how Boeing has ruthlessly exploited its monopoly of the jumbo jet market for the last two decades is one that will not be forgotten quickly by the airline industry.
For all that, the Commission's objections to the deal do not seem fundamental enough to go to war over. However, that is not going to stop Brussels using the deal as a pretext for prizing concessions out of the Americans in other areas - starting with a tightening of the rules governing the support given to their aerospace industries through the enormous research programmes run by the US Defense Department and Nasa.
This is not the first trade dispute between the two blocs and it will not be the last. The good news is that since there are no principles at stake, they should be able to horsetrade their way out of the current fix.
People must be forced to save for old age
There is something particularly irritating and holier than thou about the way Harriet Harman, social security minister, bangs on about having "inherited" a huge pensions challenge from the previous Government, as if her predecessors never bothered to think about it. Unfortunately, waving one of New Labour's strategic reviews, magic wand like, over the problem is not going to solve it. Nonetheless, if having a review helps everyone come to terms with the inevitable and all too painful conclusion that people must be "forced" to save for their old age, then it is only to be welcomed.
Strangely enough, the pensions problem faced by Britain is the exact opposite of the one that exists in Germany, France and Italy. The problem in Britain is the inadequate nature of the state pension - which is nowhere near a living wage - and the fact that a very significant proportion of the workforce fails to make any further provision for retirement. Forcing the pensions industry into providing better value for money, security and flexibility, as the OFT this week proposed, would certainly help matters, but it doesn't provide a solution in itself.
On the Continent the promised benefit of pay as you go pension arrangements are by comparison very generous, but the tax raised to pay for them increasingly inadequate. It is hard to know which is the more difficult problem. In Britain the challenge is to find ways of improving retirement benefits for all without significantly adding to the tax burden; on the Continent it is that of cutting benefit to a level governments can afford. Either way, however, the challenge faced by politicians is broadly similar - it is that of persuading the public that if they want reasonable pension benefits for all, they are going to have to pay for them.
Whether this is done through the state, or the private sector, is largely irrelevant. The bottom line is that people will have to be compelled to save. Unfortunately, that is always bound to look like a form of taxation. In grasping this nettle, Peter Lilley's much maligned proposals for privatising the state pension and changing it from a pay-as-you-go scheme to a funded investment approach, provides a useful blueprint. After the political capital Labour made out of these proposals during the election, the new Government couldn't possibly use the plans in the way intended, as a substitute for the basic state pension.
Suitably rejigged, however, they could be used as a way of providing reasonably fair second tier pension arrangements. The justification for compulsion in pensions provision is an obvious one. Without compulsion, it is those who save voluntarily who are forced to pick up the tab for those who don't. Even so, this is not going to be an easy thing to sell to the electorate. Ms Harman's review might ease the process, but it doesn't make it any more palatable.
M&S deal may be small but it's also significant
So, conservative old Marks & Sparks is stumping up nearly pounds 200m for 19 branches of crummy old Littlewoods. Is this a sign of a new, more aggressive expansion from the behemoth of Baker Street?Or just another example of relentless, measured growth by the Rolls Royce of British retailing?
It is certainly a rare occurrence. M&S has not done a major deal since Brooks Brothers in the heady days of the 1980s. This is obviously not a huge transaction for M&S, but it is not without significance all the same. There are not many opportunities to snap up this amount of prime high street retail space and M&S seems to have moved swiftly to beat off rivals likes of Boots and Kingfisher.
Obviously, this is more of a property deal than anything else. There is no goodwill write-off, and no redundancies or stock write-offs to worry about. All that is for Littlewoods. M&S simply gets 19 new stores, changes the name over the door, gets the refurbishment people in and away it goes.
In fact this deal says a lot more about Littlewoods than it does about M&S. Having failed to flog the high street stores as a job lot it is now selling its biggest, and in many cases, best stores, to a rival. It will be left with around 100 smaller branches which it may or may not rebrand under the Berkertex name. With the deal to buy Freemans home shopping from Sears still subject to an extended MMC inquiry and a pools business under the cosh from the lottery, Littlewoods seems beset on all sides with problems. James Ross, the chairman, faces the prospect of his revised strategy for the group going up in smoke. Since the controlling Moores family are not exactly backwards in letting management know what they think, it could be an interesting few months in Liverpool.
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