ANGLO-GERMAN rivalry is deep rooted. Thankfully, the tasteless brand of war reminiscence has given way to less vituperative antagonism that finds vent on the football terraces. There is sometimes a sinister element in the soccer animosity but a large part of the antipathy is good natured. And if the Krauts are offended, it is not our fault they have no sense of humour. (That is a joke, by the way,
meine Damen und Herren.)
News that Deutsche Telekom is eyeing up our very own BT is bound to elicit some xenophonic reaction. But sensible observers, employees, consumers, managers, shareholders and policymakers will give these knee-jerks short shrift. There is nothing wrong with a harmless bit of badinage, but if anyone seriously thinks that the German telcoms giant should be prevented from buying BT because it is German, they and their views should be shunned. BT is a public company operating in a free market. That means that anyone or anything can own BT as long as the normal rules of commercial engagement are accepted.
But whether the current owners ought to sell, or whether the current managers of the company ought to recommend a sale, is a quite different matter.
The industrial logic behind a DT-BT link is quite straightforward and pretty powerful. It makes sense to bring the two fixed-line businesses together. A susbstantial layer of cost would be eliminated and there would be benefits to be drawn from sharing technical, administrative, marketing and regulatory expertise.
A merger would also enable BT to re-enter the mobile telecoms race. It is only with benefit of hindsight that BT can be criticised for offloading O2 in 2001. BT’s circumstances were exceedingly trying then, and the demerger provided necessary alleviation. Now, however, with the convergence of telecoms and IT technologies identified as a goal, BT has much to gain from a mobile platform. T-Mobile, DT’s subsidiary, could provide just that.
Good could come from merging the telecoms services sides of the businesses too. This is a rich seam, as BT’s results of this week amplified.
There is a chance that competition concerns will obstruct a merger. But there is no shortage of private equity houses willing to help out with divestments and this could lower or dismantle competition hurdles.
But BT has every right to adopt a politely negative stance when it comes to mergers and acquisition proposals. Theoretic strategic logic is one thing, realistic execution is another. All mergers carry the risk of implementation failure. A BT-DT link carries a larger than normal portion of this risk.
Moreover, BT, long regarded as an unreconstructed dog of a company, is now beginning to shine. A sale now might do nothing but deliver the fruits of recent hard work into the hands of those dastardly Germans.
Time will tell
IF GUY DOLLÉ and his fellow Arcelor managers could be as creative and determined on behalf of shareholders as they are in the interests of keeping a European global steel champion, investors would be on to a winner. They have pulled out all the stops to prevent Lakshmi Mittal, the Anglophone Indian billionaire, from uniting the world’s biggest and second-biggest steel groups.
The defence started with Arcelor rushing through the takeover of Canada’s Dofasco. Then came political campaigns in France, Spain and even Luxembourg, statements of support from all top managers, asset disposals, a big capital repayment and higher dividends. Yet in the face of a higher paper offer from Mittal Steel, more was needed.
Mr Mittal rightly complains that yesterday’s shares and cash deal to buy SeverStal is a case of Arcelor’s shareholder base being manipulated. The deal values Arcelor at €44 per share only because Alexei Mordashov, the Russian firm’s controlling owner, agreed to buy a block of Arcelor shares at that price. But Arcelor shares slid below €33, against the €37.7 paper value of Mittal’s latest offer. Yet this is steel paper near the top of the cycle; it is equivalent to telecoms paper six years ago.
Arguments about value are far from being cut and dried, which makes hearts and minds more important. Arcelor has a successful record and a plausible story, as well as poison pills, to back its emotional appeal.
If Mittal miscalculated its approach, though, Arcelor may have underestimated the price that it may end up paying to see off its unloved suitor. Mr Mordashov, 40, will have almost a third of the enlarged company and a third of its board seats. He has been tied down in agreements, but as time passes the Luxembourgers may rue the day that they turned noses up at Mittal.
Shrewd move
IF YOU can’t join them then beat them could be the motto of Eric Anstee, chief executive of the Institute of Chartered Accountants in England and Wales. Mr Anstee is more entrepreneurial than is normally allowed near the top of such hierarchies. In a career ranging from power and water to life insurance, he was at both ends of many takeovers and mergers. This may have encouraged him to think he could succeed in consolidating the country’s six accountancy bodies. He started with the most complementary combination, of the ICAEW and Cipfa, the public finance body. But as with many previous efforts by many predecessors, it has not come off.
Undeterred, Mr Anstee has now resorted to competition, offering a fairly easy passage into his high-status institute for members of others. He has even sent a mailshot to finance directors, hoping they will act as agents to recruit their staff. Rivals are outraged, perhaps because they have little tangible to complain about. The recruitment drive has yet to gather unstoppable momentum. If all those who have expressed interest switched, the ICAEW will only increase its membership by 0.4 per cent.
But the principle is surely right. The urge to merge, with all its talk of cost saving, should create stronger individual players and encourage more effective competition. This is likely to provide a better service to members, whichever body they belong to. The lesson, learnt the hard way by those that allowed Big Four accountancy firms to dominate, is to maintain a fittingly appropriate number of competitive players.
HAPPY birthday, Dow Jones industrial average, 110 years old yesterday, still going strong, and still gloriously eccentric. Created by Charles Dow, the Editor of The Wall Street Journal, it started with just 12 constituent companies and still only has 30. Reshuffles are rare and at the whim of editors, who have no truck with market capitalisations or other objective measures. It’s unscientific and market professionals mostly use the S&P 500. But for many it remains the unquestioned barometer of US capitalism. Many happy returns.
