Why Sir Stanley is wrong about regulation
Thursday 15 August 1996
Sir Stanley is unimpressed by New Labour. He thinks that fundamentally the party hasn't changed at all and he believes Mr Blair's commitment to a minimum wage and the Social Chapter poses a serious threat to business. Likewise, he doesn't believe in Cadbury and Greenbury, or as he put it in the Dixons annual report, "management by prescription". Sir Stanley doesn't speak for all businessmen, naturally, but his views are representative of a fair number. Business is still highly suspicious of Labour, as is the City too. The old mistrust hasn't gone and as we approach the election, it will increase.
But Sir Stanley, though he makes good points, is wrong about the perils of regulation. Free markets don't work without rules and regulations to curb abuse. To that must also be added that market economics will be seen to have failed without some form of safety net to catch the socially disadvantaged.
Britain's opt-out from the Social Chapter and its refusal to impose a minimum wage gives some businesses in Britain a very significant competitive advantage over those in countries that have taken these things on board. If Sir Stanley really believes that Europe is for long going to allow Britain to have all the benefits of the EU without having to abide by any of its social disciplines, then he is being naive.
The same is true of the capital markets where Sir Stanley seems to want the advantages without conforming to any of the rules. There is a lot wrong with Cadbury and Greenbury, but warts and all, they are an honest attempt to deal with past abuse, an attempt to safeguard legitimate shareholder and public interest. They are not attempts to manage by prescription, and Sir Stanley knows it. But then, if you are paying yourself close on a million a year, you've got to find some way of diverting attention from it, haven't you?
A long and difficult road ahead of BMW
Applying German accounting rules to the profit and loss account of any British company tends to have an unpleasant effect on the bottom line. But that alone is not enough to explain why BMW does not now expect a positive contribution from Rover until some time in the next millennium.
Indeed, one of the enduring mysteries of 1994 was why on earth BMW thought it worth paying British Aerospace pounds 800m to take Rover off its hands. The market was hardly at a peak - unlike five years earlier when Ford paid the outrageous sum of pounds 1.6bn to acquire Jaguar - and there was not exactly a queue of buyers lining up outside BAe's door. In truth, Rover was barely profitable and then only because of the performance of the Land Rover- Range Rover business which masked heavy losses in Rover's main car division.
At the time, however, Bernd Pieschetsrieder, the BMW chairman, preferred to speak mistily of resurrecting the Riley and Wolseley marques while Rover executives confidently predicted that there would be no loss of identity on the grounds that "when you have a fine claret and a fine burgundy you do not mix them in the same glass".
Well, it has taken a little over two years for the party to end, the hangover to set in and BMW to reach for the Alka Seltzer. After leaving Rover largely to its own devices, the Germans are, like a rash, suddenly all over Longbridge and Cowley. It is easy to see why if you subscribe to the view of John Lawson at Salomon Brothers. He says Rover has some of the worst production economics of any European car maker, a range which is ageing more quickly than most of its counterparts and a model replacement programme which could soak up pounds 3bn in the next six years and still leave it trailing in the wake of even the much-maligned Renault.
While the analysis might be extreme, at least some of it must reflect the concerns being aired in Munich. Rover's production lines may be flexible. But to be making only 10 models yet using eight different platforms, when VW will be turning out seven times as many cars on half the number of platforms, has to be the economics of the madhouse.
It has taken Ford seven years and some fearful accumulated losses to begin making headway at Jaguar. BMW looks to be at the start of an equally long and difficult road. Mr Lawson says it will depress its share price by 15 per cent for the foreseeable future. One thing is certain, the pain will be felt as much in the Midlands as Munich.
Any buyer will do for British Energy
Another day, another minor humiliation for what looks, mercifully, like being the last big privatisation for the foreseeable future. Tucked away in the prospectus for the British Energy flotation is a fascinating little paragraph which just about sums up the lengths to which ministers were prepared to go to get this one away.
We will not bore you with the legalese, nor the casual butchery done to the English language in its drafting. Suffice it to say that this paragraph gave the international managers syndicating the offer carte blanche to sell the shares to pretty much anyone they could find provided they were prepared to underwrite those bids and buy back the shares should they be sold within three months.
Now it is normal practice in privatisations for the Government and its advisers to ensure that the institutional book is of the highest quality. The last thing they want is investors of dubious pedigree shorting the offer or unloading stock in the immediate aftermarket. Indeed, the sanction usually bandied around is to threaten to exclude any institution engaging in such behaviour from future privatisations.
In the case of British Energy, the Government and BZW were clearly concerned less about the provenance of the bidders and more about the colour of their money. Not that Cazenove or Capels would put fast money into the stock, you understand. But what about the other members of the syndicate? Sitting in Whitehall it is impossible to vet the credentials of every investor in southern Italy.
We are assured that the proportion of shares subject to this unusual underwriting arrangement was "not significant". But the arrangement still speaks volumes for the conduct of the sale as a whole. Perhaps it is just as well that the Treasury has nothing left in the cupboard to sell. Except of course the 12.3 per cent stake it is still left holding in British Energy even after doing everything it could think to offload the stock.
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