Trafalgar's shock troops face an uphill struggle

COMMENT

After five years in the hot seat at Jardine Matheson, Nigel Rich thought he needed a new challenge. Taking on Trafalgar House, the once great engineering-to-shipping conglomerate the Keswick brothers had vowed to rescue, has certainly provided it. Loaded down with share options from Jardines, he plainly did not need the money and a less driven man might have thought of better ways to spend his time than grappling with what has been a quite staggeringly badly run business.

Losses of pounds 48.2m in the six months to March were a great deal worse than expected, underlining just how important it was to Trafs to buy Northern Electric and how difficult it could be to raise the necessary funds if a renewed bid gets the go-ahead this summer. Three cash calls in two years have soaked up more than pounds 900m; it is hard to imagine shareholders stumping up any more until there is evidence the new regime is making a difference.

Trafs is in a cleft stick. It needs to acquire steady, non-cyclical earnings to use up its considerable tax losses and provide some UK profits against which to offset its advanced corporation tax millstone. But the last thing it can afford is the time required to push through another hostile bid. The attempt to buy Northern not only cost a net pounds 12m - after taking account of a pounds 5m profit on those controversial contracts for differences - it took three of the nine months the new team has been in place.

John Olsen has carried the can at Cunard, taking responsibility for a pounds 7.5m compensation package for passengers on the Christmas cruise from hell. But the catalogue of errors during the half-year suggests that many of his colleagues are lucky not to have joined him.

Arguably there was not a lot the company could do about a dud batch of turbines from General Electric, but it can be blamed for not seeing the lack of orders and cutting costs appropriately in power engineering. Turning a pounds 16m profit into a pounds 28m loss over the course of a year suggests more than the "limited number of specific problems" gloss put on the division's performance.

The compensation package at Cunard had been well flagged but an underlying loss of pounds 6.9m and a 10 percentage points fall in occupancy on the cruise ships also suggests a deep-seated malaise that will draw heavily on Peter Ward's undoubted marketing skills.

Mr Rich is right to take power back from the provinces and it is to be hoped that the head office shock troops he plans to send into the subsidiaries can sort things out. With cash still flowing freely out of the balance sheet, and trading conditions remaining dire in most of its businesses, they face an uphill struggle.

Yesterday's 4p fall in the share price to 48p means the value of Trafs has fallen by 85 per cent in the past five years. Hongkong Land got in well below the peak but the pounds 335m it has injected is not far short of the whole company's market capitalisation now. Buying a UK base must have seemed a good idea at the time but the choice of vehicle was always suspect. Certainly any hope the Keswicks had of turning Trafs into the new Hanson now looks as if it has gone for good.

Who can follow Carsberg? Who would want to?

There can be no clearer illustration of the confusion that has crept into competition policy than Michael Heseltine's search for a credible successor to Sir Bryan Carsberg at the Office of Fair Trading. Sir Bryan is today working out his final hours as director-general; it could reasonably have been expected that Mr Heseltine, President of the Board of Trade, would by now have found a suitable replacement. As it is he is having to make do with the presumably stopgap measure of making Sir Bryan's number two, Jeffrey Preston, acting director-general. That there has been difficulty in finding someone of stature to fill the post should surprise no one, for it is hard to know what is expected of Britain's top competition regulator these days.

Mr Heseltine and Sir Bryan did not see eye to eye on competition policy; that is an open secret. Sir Bryan's approach was strongly consumerist and he clearly felt frustrated in much of what he did. He also favours a radical overhaul of present competition law to let the OFT act wherever it considers there to be abuse of market power - a shoot first and ask questions later policy along the lines operated in Brussels. Mr Heseltine is much more pro big business. He favours the status quo; an all powerful regulator would be as capable of abuse as a profiteering monopoly, he believes, and he is firm in his view that narrow domestic competition criteria should not be allowed to interfere with the development of national champions in the wider public interest.

Mr Heseltine would like to see someone like Graeme Odgers in the OFT job. As a former industrialist, he has proved a strongly pro-big business head of the Monopolies and Mergers Commission; his views on competition policy are pretty similar to those of Mr Heseltine. Alas for Mr Heseltine, there are few people like Mr Odgers prepared to accept the necessary pay cut to do the job. Nor, with the prospect of a Labour government only two years away, are there many prepared to argue the case for the status quo.

Minority shareholders and Black have a problem

Conrad Black has managed to anger the City yet again by abandoning his proposed offer to buy out minority shareholders of the Telegraph group. Before joining the hue and cry over the latest shinanigans, however, it is worth remembering a few salient facts. Mr Black first unveiled his proposals to reorganise his media interests under the umbrella of his US vehicle, American Publishing, last February, when the stock languished at about 370p. He and his lieutenants have strongly hinted ever since that he was unlikely to pay much more than 450-470p a share, and he stuck to that range right to the bitter end. It was the independent directors, along with their advisers, who fuelled expectations of a higher price, perhaps of more than 500p.

The two sides were apart on four main factors - the cover price war, the trend in newsprint prices, the value of Telegraph's stake in Fairfax, the Australian media company, and the value of a 15 per cent holding in the Canadian-based Southam group. There is no compelling reason to assume Mr Black's judgement, along with that of the independent committee at American Publishing, is any less sound than the other camp's.

All the same, both the minority shareholders and Mr Black are left with a problem. Mr Black's reasons for wanting to do this deal have not disappeared with the bid. He still wants to reorganise his media holdings under a US subsidiary. He also wants simplicity, easier financing and the tax advantages of the US. For their part, minority shareholders, particularly those who bought shares last year at 587p in a controversial placement, want a chance to get out. The status quo is simply untenable.