Michael Harrison's Outlook: Turn on, tune in, drop out: radio merger takes another player out of the game

Peugeot driver faces tough road ahead - Time to stop digging, Eurotunnel

If you thought Kerrang! was a carbonated children's drink go to the back of the class. If you knew it was a rock music magazine, award yourself a point. But if you were aware that it is also a digital radio station collect your free set of stereo headphones and latest Nirvana CD.

Emap, the owner of the Kerrang! brand, yesterday forked out £285m for the 73 per cent of Scottish Radio Holdings (SRH) that it did not own as the great game of musical chairs being played out by the industry lost another participant.

Recent radio mergers do not have a happy history as GCap, the botched marriage of Capital and GWR, painfully demonstrates with audience share and advertising revenues both down sharply. In GCap's case, things are not helped by the fact that it is in effect being run by two chief executives with rock star-size egos to match.

Tom Moloney, the lifer who runs Emap, reckons he can buck the trend by turning his magazine titles into radio stations and marrying them with the big heritage stations such as SRH's Radio Clyde, not only to offer advertisers unrivalled reach but also to take on and beat the BBC. He will be able to offer not just a national digital platform but coverage of every major conurbation in the UK.

The bigger the audience, so the theory goes, the more Emap can spend on marketing its brands, in turn attracting yet more listeners and advertisers. It is this version of the virtuous circle which has encouraged Mr Moloney to pay top dollar to expand further in an industry which is in retreat - Chrysalis, as well as GCap, warned on revenues yesterday. Mr Moloney did not have much choice but to pay a premium given the scarcity of radio players on the market. He can comfort himself that Emap's stable of magazines are throwing off plenty of cash. But only time will tell whether he has another Smash Hits! on his hands or is about to feel the Heat.

Peugeot driver faces tough road ahead

Ten years ago, few commentators gave Peugeot Citroën and Renault much hope of surviving as independent companies. Today, these twin pillars of the French motor industry are among the most profitable car makers in the world. Indeed, far from losing its independence, it was Renault which rescued the Japanese car maker Nissan from oblivion.

Peugeot, meanwhile, has been reinvented in the past seven years since Jean-Martin Folz arrived to take over from Jacques Calvet, who famously witnessed the arrival of Nissan, Honda and Toyota in the UK and prominently likened it to a Japanese aircraft carrier loitering off Europe's north-west coast. Times, and French attitudes, have changed since then, so much so that Peugeot and Toyota have now begun joint production of a new small car in the Czech Republic.

Since 1997, Peugeot has increased car production from 2 million units to 3.4 million, grown its European market share to a shade under 15 per cent and seen its share price almost triple. Heavy investment in new models (between 2004 and 2006 some two-thirds of sales will come from newly developed cars) and the support of a controlling shareholder in the shape of the Peugeot family have helped.

But the engine of growth has stuttered recently thanks to the strength of the euro, the sluggishness of mainland European car markets and a sharp fall in sales in developing regions such as South America. Peugeot has already conceded it will not hit its target of selling 4 million cars a year by 2006 and M. Folz freely admits that achieving this goal will be a lot tougher than the road he has so far travelled.

So how does he repeat the miracle of the past seven years? Buying growth through acquisition appears to be off the agenda since the European car industry's consolidation phase seems to be at an end. The only car maker obviously up for sale is Fiat and who would wish to buy that, asks M. Folz. In any event, the real economies of scale lie not in combining car production but enlarging production of engines and gearboxes.

Peugeot can continue re-inventing its model range and leveraging the respective merits of its two brands which, outside France, few consumers seem to realise are owned by the same company. But beyond that, Peugeot is hostage to the fortunes of its chosen markets. How badly will the "no" votes in France and the Netherlands dent the European project and hence affect economic growth and demand for cars? How quickly will the Chinese market recover from the slowdown in growth it experienced last year? How quickly will Latin America and Eastern Europe grow?

There is, of course, one transformational move Peugeot could make and that is to re-enter the US. The American car market is as big as Europe's put together but Peugeot has not had a presence there since 1992. M. Folz says it is not a matter of if but when Peugeot returns to the US but it will need an appropriate range of cars, a dealer network to support them and evidence of an American appetite for something which is distinctively European, even French, in design and performance. Well, that could be a long time coming for there are not too many Francophiles in President Bush's America. As George W might put it: Let them eat cheese.

Time to stop digging, Eurotunnel

Ding, dong, round two. Boardroom unity is an ephemeral thing at Eurotunnel. The latest outbreak of peace among the Channel Tunnellers has lasted precisely three days. The chairman Jacques Gounon has called on two of his fellow directors, the former chief executive Jean-Louis Raymond and his deputy, Hervé Huas, to resign "if they have any sense of honour" after their failure to unseat him at last Friday's annual shareholders meeting.

It is easy to understand why M. Gounon would not want to be fighting Eurotunnel's creditors with one hand and two disaffected directors with the other. But it is harder to understand why, therefore, he used his proxy votes as chairman to ensure the re-election of M. Raymond and M. Huas last week.

The answer, we are told, is that Eurotunnel's chairman was involved in "event management" at the AGM - making certain the entire board was re-elected unanimously so as to create the impression of a stable, united company. Job done, the two dissenting directors can now be thrown overboard and replaced with a couple of co-opted non-execs, one of whom may even be a Brit.

With cunning and tactics like this, the talks between Eurotunnel and its creditors which begin in earnest today, look certain to turn into a game of chess rather than the all-in wrestling match the late Sir Alastair Morton preferred.

M. Gounon says he wants the banks to write-off £4bn of the £6.4bn they are owed. The creditors reply that they will force the company into bankruptcy unless they get a debt-for-equity swap.

Already there are signs, however, that having been safely re-elected, M. Gounon is beginning to finesse his position. Before the AGM, any suggestion of existing shareholders being diluted was out of the question. Now M. Gounon merely promises that he will "fight as best he can" to avoid this but cannot guarantee the outcome.

When in a financial hole the size of the Channel Tunnel, the best course of action is generally to stop digging. Whether M. Gounon can actually build a sufficient bridge between his shareholders and the creditors to preserve honour on both sides remains to be seen. But his blood-curdling threats over the weekend of insolvency by the autumn unless the creditors strike a deal looks as if it should be treated as one more piece of event management. Steady yourselves for a Henman-style cliffhanger as the summer wears on.

m.harrison@independent.co.uk