Outlook: Six Continents looks vulnerable to Hugh Osmond's tiddler

Fast back Reuters; It's a Higgs' life

Capital Management & Investments was set up by Hugh Osmond and others to invest in technology and dot.coms. Luckily it was too late into the great speculation to make any headway, and today CapMan finds itself being used as the unlikely vehicle for a possible multi-billion pound bid for Six Continents. Mr Osmond, the ambitious entrepreneur and financier originally behind Punch Taverns, was refusing all comment last night, but nobody can be left in any doubt as to his intentions after, in a hitherto unnoticed transaction, he exercised an option giving CapMan a £14m stake in the hotels and pubs goliath.

In the context of a company worth £4.8bn, this is barely a fleabite and in theory Six Continents ought to have no difficulty in dismissing any reverse takeover bid from such a tiny upstart. On the other hand, the disclosure of Mr Osmond's interest comes midway through a deeply unconvincing, "value enhancing", demerger of Six Continents.

Shareholders are disillusioned enough with the management and its record that they might just bite if Mr Osmond has a convincing enough strategy for releasing value. He'll want quite a bit of it for himself and his backers, of course, but even 50 per cent of the upside is a whole lot better than 100 per cent of nothing. It may never happen, but if it does, it promises to be a humdinger of a battle, with the old guard of the pubs sector pitching its wits and record against the new. Unfortunately for Sir Ian Prosser and his team at Six Continents, it is usually the new that triumphs.

Fast back Reuters

Tom Glocer, chief executive of Reuters, has called his three-year turnaround strategy "Fast Forward", but to understand the nature of Reuters' problems, you have to fast back a bit. Reuters is a newswire service that as much by luck as design found itself at the centre of the explosive growth in capital markets.

As a consequence, it became a goldmine. The newspaper proprietors that once owned Reuters could hardly believe their luck on discovering what a property they had on their books, and led from the front by Rupert Murdoch, they were all soon pushing for a stock market flotation, which eventually took place in the mid-1980s. Reuters may have been clever in spotting and exploiting the early market for real time information, but its culture and stance was always a little remote from the markets it served.

With Bloomberg, the main competition to Reuters at the premium end of the market, it was much more the other way round. It was founded by a former investment banker, Michael Bloomberg, and it deliberately set out to build its reputation around offering the trader what he really wanted and needed, rather than what the company thought it could deliver.

There was no baggage, no legacy culture to get in the way of its full on service proposition, and what's more, it hailed from the founding home of investment banking, New York. For a time, there was enough growth and money in the market to allow the two to co-exist, not happily, but certainly without bumping too much into one another. In recent years, that's become increasingly difficult. Meanwhile, the internet has spawned a plethora of low cost alternatives to the big proprietary networks.

It has taken one of the most vicious investment banking downturns in living memory to expose Reuters' competitive weaknesses. I should be careful not to get too carried away here. The degree to which Bloomberg has outtraded Reuters is often exaggerated. Bloomberg is a privately owned company whose true performance is hard to assess. Almost certainly it doesn't match the boastful rhetoric. Reuters, by contrast, lives its life in the goldfish bowl of the publicly listed sector. The reality is that both have been severely affected by the cutbacks in investment banking. On the other hand, Reuters has plainly been much more affected. The Reuters screen tends to get chopped before the Bloomberg one.

Mr Glocer says he's determined to stop the rot, but for the time being his task seems more that of cutting costs faster than the revenues can fall than addressing the fundamental issue of why Bloomberg is selling better than Reuters. The Fast Forward strategy has got all the right jargon, but it still looks more like a game of catch up than leapfrog, and as for the idea that Reuters' salvation lies in becoming a broad provider of information system solutions to financial services companies, what on earth became of that? Another victim of the downturn, presumably. Mr Glocer has talked his talk, but judging by the 12 per cent fall in the share price yesterday to its lowest level since flotation, the market still doesn't buy it. In theory, Reuters is bid proof because of a blocking trust. Mr Glocer would be unwise to bet on it.

It's a Higgs' life

As can be seen from the feature opposite, it's hard to find a business leader whole-heartedly in favour of the Derek Higgs proposals on non executive directors. With varying degrees of passion, most of them dismiss the recommendations as a damaging over reaction to a series of US corporate scandals that are of very little relevance to these shores. Sir Richard Greenbury, the man in charge of the last big corporate governance review, came to regard his task as a poisoned chalice. Derek Higgs, a City grandee, isn't that disillusioned yet, but he's already visibly uncomfortable with the wall of hostility.

Regular readers of this column will know I have taken the opposite view. US legislators would still like to foist Sarbanes-Oxley onto UK quoted companies alongside American ones if they could get away with it, and I've long seen Higgs as at the very least the least bad alternative to something very much worse. But I also genuinely think the proposals make sense.

All three previous corporate governance reviews – Cadbury, Hampel, and Greenbury – encountered equally fierce opposition (much of it, if the truth be known, from those who hadn't even bothered to read the reports), and while you can argue about how much good they have done, it doesn't appear to me they did much harm either. Like all forms of regulation, it is in any case extremely difficult to prove a positive, as you don't see the successes. We only know that in some cases these safeguards have failed.

Higgs won't work in all cases either. Mistakes will happen and it would indeed be unrealistic, as well as damaging to the proper functioning of the free market, to try and construct a system where all risk is removed. None the less, these proposals offer a credible way forward and if correctly implemented a real possibility of improvement.

I cannot anyway see what the fuss is all about. The outcome of the three previous corporate governance reviews was wrapped together into the Combined Code, a non-statutuary statement of best practice. Hardly any quoted company in the UK abides by it in all its various particulars, and they are not being asked to do so with Higgs either. As I understand it, even those that cannot or will not explain why they don't adopt Higgs aren't going to be delisted. They'll just have to find other ways of convincing investors they are a good home for their money.

You can take any number of recent examples to illustrate why Higgs might do some good, but one of the best is Cable & Wireless. In most respects, C & W obeyed the principles of the combined code, but still shareholders, who lest we forget are the owners of the business, were unable to get their message through that they thought the strategy flawed and high risk, and would really much rather the money being raised from disposals be returned to them than spent on candy floss acquisitions.

Who knows what would have happened if Higgs had been in place, but it seems reasonable to conclude that the existence of a senior non-executive not answerable to the chairman might have prevented at least the worst aspects of this entirely predictable corporate road crash.

jeremy.warner@independent.co.uk