Conjuring cannot change Forte's track record

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The lines are drawn, the gloves are off, decision time approaches. Forte has fought a magnificent campaign. If ever there were a case that deserved to win on public relations effort alone, this is it. During the course of the takeover battle, Forte seems to have brought about a sea change in City perceptions, swinging the position from that of a no-hoper to that of commanding lead over its assailant, Granada.

In the end, however, this is not a difficult choice to make. What we have seen from Forte over the past six weeks amounts to little more than an elaborate show of pyrotechnics. In his determination to save something of the family silver, Sir Rocco Forte has been prepared to give the City virtually all it could ask for - a spectacular share buyback funded by the sale of the company's roadside catering business, the sale of the Savoy stake, the promise of a steadily rising income stream. Everything, that is, bar one thing: his own head. Even that may be negotiable, with Sir Rocco possibly prepared to split the roles of chairman and chief executive. But there is one thing that all the conjuring cannot do. It cannot change Forte's track record, which, even on the kindest of interpretations, is a poor one.

With a decent bid, if not a knock-out one, now on the table, this is Granada's strongest card and ought to seal Forte's fate. Not that anyone should have any illusions about Granada's bid - it was exposed yesterday for all its base motives as an old-fashioned break-up, what used to be called asset-stripping. Granada plans to keep only the roadside restaurants and the middle- to down-market hotels. The rest will be sold. Nothing like this - to bid pounds 3.7bn to sell pounds 2bn of assets - has been attempted for many a year. Furthermore, with the bid costs now mounting towards pounds 70m, the cost of failure is high.

The alternative is not particularly alluring either, however. Forte as a pure hotels group may seem to provide the "focus" that shareholders like to see in companies these days, but in truth there is little that unites the management of top-of-the-range trophy hotels with that of the Posthouse chain. Forte's past gives little reason to suppose it can deliver the profits necessary both to fund its dividend promises and the investment these hotels demand. It's time to move over and give somebody else a go.

Dark days in the European heartland

The steep jump in German unemployment in December is a storm signal not just for Germany but for the wider European economy, including Britain. Apart from the obvious danger of slack demand in the engine-room of Europe affecting trading partners through lower demand for exports, the intensity of the German slowdown casts a pall over prospects for European Monetary Union.

The silver lining to the depression sweeping in from Europe's heartland is that Kenneth Clarke will find his path to lower interest rates eased by a further reduction in German rates. It now seems likely that the Bundesbank will cut the discount rate again to 2.5 per cent - a rate only reached once before since the War - this spring.

After stalling in the third quarter of 1995, the German economy now seems certain to have gone into decline in the fourth quarter. The sharp rise in unemployment of 68,000 in December - the highest for more than two years and the fifth consecutive monthly increase - testified to a seriously sagging economy. Industrial output in October and November was more than 2 per cent below the third-quarter average.

Bear in mind that even the picture of flat output in the third quarter was a flattering one. Without a big rise in stockbuilding, economic activity would have fallen substantially. Against this background, the decision of a leading German economic institute, the DIW, to halve its growth forecast for 1996 from 2 to 1 per cent looks plausible rather than alarmist.

While conceding that Germany was now likely to miss the Maastricht criterion of a budget deficit of 3 per cent or less in 1995, Theo Waigel, the German finance minister, claimed that Germany would make amends in 1996. This looks more like the bravado of finance ministers around the world rather than a realistic prognosis.

But if Germany is in difficulty on that front, how much more so will France be? The Bundesbank's half-point cut in the discount rate in December opened up headroom for a further reduction in the intervention rate tomorrow by the Banque de France.

But even if the Bundesbank cuts again, the easing in monetary policy looks like coming too late to lift French economic growth much above 1.5 per cent next year.

If the dollar weakens in the spring as Japanese institutions liquidate dollar-based assets to meet end-of-year reporting goals, the franc fort policy could come under renewed pressure. The moment of maximum danger for the French usually attends dollar weakness. To the beleaguered French authorities, the goal of meeting the Maastricht deficit objective looks ever more like an endlessly receding mirage.

With a quarter of visible exports going to France and Germany, the British economy will not be able to escape the downdraft from a tailspin in the heartland of the European economy. The Treasury's forecast of a recovery in exports of goods and services to over 7 per cent in 1996 looked over- optimistic at the time of the Budget; now it looks increasingly unachievable.

The jump in German unemployment also serves as a further antidote to Tony Blair's vision of the stakeholder economy. If any European country offered a role model and deserved such a soubriquet it was Germany. Yet there is no greater stake for citizens in an economy than a job, something that the German economic system is no longer any better at providing than Britain.

Time to move house at Fraser

House of Fraser has been a nightmare on the high street, for its shareholders at least. The lumbering department store group has promised much but delivered little since it came to market two years ago.

It is now three years since the Fayed brothers of Harrods fame sold the group, so it is no good excusing this poor performance as the curse of the Fayeds. Brian McGowan, the much-feted 1980s star who performed so well at Williams Holdings, and Andrew Jennings, who left Harrods to become House of Fraser's managing director, must take the blame.

It was Mr McGowan's presence as chairman that lured around 100,000 private investors into House of Fraser. But the shares, priced at 180p on flotation, have been hit by four profit warnings and now stand 10 per cent below the issue price. They have been given the benefit of the doubt several times by patient institutions, but Mr McGowan and his fellow directors should now be asking themselves who their successors will be.