Outlook: Britain the only casualty as Hoon picks a new fight with BAE

Dixon's chapter 11; Dirty tricks trivia

The Defence Secretary, Geoff Hoon, is not the sharpest knife in Tony Blair's Cabinet, and he has just proved it again. His observation that BAE Systems is somehow "not British" because more than 50 per cent of its shares are owned overseas is silly and mischievous. Worse than that, it displays a breathtaking ignorance, by confusing the amount of BAE shares owned by British investors with the contribution it makes to the British economy.

If the Government displayed a similarly casual contempt for the City, which is overwhelmingly owned by foreigners, and treated it accordingly, then there is no doubt that the UK would be the loser. For the record, BAE is headquartered here, employs more than half its entire staff in the UK, generates £6.3bn of its sales from British factories and counts the Ministry of Defence as its biggest customer.

What's more, its chairman and chief executive and a majority of the board are British – a fact which Mr Hoon ought to be aware of since this is what the Government's golden share requires of BAE. Indeed, it is hard to think of a major company which is more British. Mr Hoon wouldn't presumably think of the growing number of FTSE 100 companies, including Marks & Spencer, which are these days actually run by foreigners as somehow "un-British", so why BAE?

One possible explanation is that Mr Hoon is trying to soften up public opinion before awarding the £10bn aircraft carrier contract to the French. We know that relations between BAE and the MoD have reached an all-time low, but this surely would be a case of cutting off your nose to spite your face. No other country in the world would award such a prestigious contract to anything other than one of its own prime defence contractors, but then Mr Hoon doesn't seem to believe BAE is British.

One wonders what the Trade Secretary, Patricia Hewitt, and the Foreign Secretary, Jack Straw, think of Mr Hoon's spin. They, or rather their departments, spend a great deal of their time going around the world batting on behalf of BAE precisely because it is a British company. The biggest constraint on the Government's "ethical foreign policy" is the fact we have in our midst one of the world's largest defence contractors, and that British technology and employment would be damaged if the ethics were properly applied. How much more British do you have to get?

What makes Mr Hoon's assertion all the more risible is that it contradicts his own department's policy, which is to define a UK defence contractor not by who owns its shares but where its skills base, intellectual property rights and investment reside. The Blair Government has been spoiling for a fight with BAE ever since the company adopted a set of initials in favour of the name British Aerospace and decided to create a UK defence monopoly by buying up GEC Marconi instead of merging with a European partner.

With a timing which is as spectacularly inept as his logic, Mr Hoon has decided to launch his assault just as Britain's armed forces are being sent to the Gulf equipped with kit overwhelmingly supplied by BAE. Even the dimmest general could tell Mr Hoon that it is not a very good idea to fight a war on two fronts at the same time. With luck, Mr Hoon will end up paying the price.

Dixon's chapter 11

Mark Dixon, the former hotdog salesman turned property entrepreneur, insists that he never said Regus was recession proof and I believe him. What some of the company's more enthusiastic promoters did say at the time of its flotation in mid-2000 was that the short-term nature of its lettings would make it more immune to a downturn than other property companies, this because in a downturn tenants don't want to commit themselves to long leases. Somehow this got translated in the cuttings into the claim that the company was recession proof. As everyone all along suspected, the very reverse is true.

So bad has Regus's position become that it has been forced to seek Chapter 11 protection from its creditors in the US while it attempts to sort out its affairs. This also involves the unprecedented event of Chapter 11 protection for the parent company in the UK, since without it US creditors could go after the UK assets instead. As it happens, there is nothing particularly wrong with Mr Dixon's business model. His mistake was the commonest one of all among entrepreneurs – overexpansion in the wrong place at the wrong time.

In his quest for global domination, Mr Dixon signed up to a string of new serviced office business centres in what were then the boom economies of California, Oregon and Washington. Within months, the dot.com and technology bubbles had burst and the property market on the West Coast of the United States was in the sharpest downturn in living memory. Mr Dixon was left with long leases at big rents but nobody to fill his space with. To make matters worse, his major competitor in serviced offices, HQ, pre-empted him with Chapter 11, hammering down rents even further. Mr Dixon reckons he's paying 25 per cent more for his space than the going rate, and when that space is largely empty, it really hurts.

Under Chapter 11, landlords are able to claim a year's rent or 15 per cent of the remaining lease, whichever is the larger. Mr Dixon admits that even with the cash he received by selling off 58 per cent of his UK business last year, he'd be dead in the water if he had to pay out on such a scale. Instead, he's betting on being able to negotiate much lower rents on the majority of space he's got on the West Coast, leaving him with perhaps as little as $40m to $50m of claims, which can be paid over a three to five-year period.

With luck it will get him off the hook. Mr Dixon has fought like an alley cat to keep his business afloat, and he deserves credit for that. Even so, the City will not forgive him lightly for the disaster of the shares float. The flotation was rebuffed when first tried, for the very reasons that have now come to pass, but on the second attempt, Mr Dixon succeeded. Investors should have stuck with their initial judgement.

Dirty tricks trivia

The presumably placed story in a rival newspaper yesterday that Sir Ken Morrison has airbrushed out a phase of his life in his 2003 Who's Who entry by failing to list his first marriage and the daughter it produced is only of interest because it is strongly suggestive of dirty tricks. I've no idea whether the story is true or not, or if it is, why Sir Ken failed to mention it.

All attempts to verify the undisclosed marriage have drawn a blank. What is certain is that it is of no relevance to his company's bid for Safeway at all. If this is the worst that rival bidders can come up with in their search for material with which to discredit him, then Sir Ken really doesn't have a lot to worry about. Sir Ken is an easy target in the City, if only because he is notoriously dismissive of it, but nobody's going to take any notice of this. It doesn't even fall into the same category as Jimmy Gulliver's misrepresentation of his time at Harvard, which caused a huge bust-up with colleagues when it emerged during the Distillers bid battle.

Even so, he's not going to like it. Sir Ken is an intensely private man, and this is really the first time in a career spanning more than 50 years that he's popped his head above the parapet. It's only week one of the campaign and already the dirt is flying. If the City doesn't watch it, he'll throw in the towel and retreat to Bradford. Given the daunting competition hurdles faced by rivals, Safeway shareholders might be left with nothing, other than a business in even more rapid decline than it was before the supermarket war broke out.

It scarcely needs saying that this would suit the big three almost as much as actually buying Safeway, so if they can frighten Sir Ken off, so much the better. Commerce, it seems, is often as brutal and vicious as war itself.

jeremy.warner@independent.co.uk