HOWZAT

The BA-American alliance is the product of these rules. Rather than one buying the other, as would happen in any other industry, they are forced to do a virtual merger, operating their flights across the Atlantic as if they were run by one company.

Such tie-ups have been shown to be fragile in the past. BA’s first American target in the 1980s was United, then US Airways before it settled on American, while Continental recently ditched its alliance partners in favour of a rival group. The scrapping of ownership restrictions would not only do away with such sham mergers but allow much needed consolidation finally to take place.

Boutique banks thrive

IS this a sign of things to come? Instead of appointing one of the big investment banks to advise on a $41 billion (£22 billion) bid for Genentech, Roche, the giant pharmaceutical company, has turned to Greenhill, the boutique investment bank, as its sole adviser.

In the good days of the bull market a bank like Citigroup would have secured the mandate and then banked a fortune by providing the debt finance. And look where that got us. What Roche has highlighted is that chief executives are turning to some of the growing crop of boutique banks for more independent advice while the debt will be arranged separately.

Many of the boutiques like Greenhill, NM Rothschild and Evercore are loaded with investment bankers who have left the big integrated machines like Morgan Stanley and Citi. It will be fascinating to see whether this trend develops when the City returns to work in September and a number of merger and acquisition (M&A) opportunities are dusted down.

As the City prepares for the last quarter there are the ingredients for a resurgence in M&A activity. It will not be enough to stem the flood of job losses in the investment-banking community, but it will lift some of the gloom.

A number of sectors are up against the wall, from housebuilding to media and financial services. And within these sectors there are investors marooned in companies that are overloaded with debts. The shareholders don’t want to put up more capital and the banks don’t want to take a haircut. But both parties still want to find a long-term solution and the best one could be some form of merger or acquisition.

Woolies challenge

STEVE JOHNSON, who has just taken over as chief executive at Woolworths, will bank £4.8m over the next four years if he can triple the share price to 20p. His total pot, including bonus and a salary of £550,000 over that period, could come to £9m. Good luck to him. Woolies is a basket case and Johnson, who comes from the DIY sector, is going to need more than decorating skills to paper over this company’s financial cracks.

If he achieves it, I won’t begrudge him a penny but I will be surprised if he does. For a long time Woolies’ share price, which closed the week at 6.59p (valuing the company at £93m) has been saying this situation is unrecoverable. And if Johnson sells its DVD publishing arm, the 800-store chain look even less attractive than it already is.

john.waples@sunday-times.co.uk

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