Editor: John Arnold. E-mail jarnold@creditman.co.uk
Pat Williams. E-mail pwilliams@creditman.co.uk
Site: Business Credit Management UK
URL: http://www.creditman.co.uk
Issue: Vol 5 Issue 27
Dated: 8 July 2001
Welcome to the Business Credit News UK.
In this weeks edition you will find the following topics.
UKCBI "DISAPPOINTED" THAT INTEREST RATES ARE KEPT ON HOLD
The CBI said last Thursday that it was disappointed that the Bank of England had missed an opportunity to lessen the consequences of the world economic slowdown.
John Cridland, Deputy Director-General, said: "We understand the dilemma facing the Bank of England, given that confidence remains high among consumers. But many sections of industry are coming under increasing pressure from the global slowdown and an interest rate cut now would have been timely in helping to mitigate its effects.
"With wage settlements remaining subdued and the pound strengthening against the Euro, a cut in interest rates would not have threatened the inflation target."
CHAMBERS REACTION
Reacting to the Bank of England's decision to leave interest rates on hold at 5.25 per cent, David Lennan, the new Director General of the British Chambers of Commerce said:
"The economy is sending out mixed signals, reflected by the Bank's caution in movement on rates. Despite such uncertainty, it is clear that the next rates move remains in favour of a cut, particularly now that parts of the manufacturing sector are suffering their worst slump for years.
"It could be argued that a cut in domestic rates at this stage would have done little to help our manufacturers, who are hit most heavily by the slowdown overseas. However, the Bank must take full account of the knock-on impact that potential recession in manufacturing will have on other parts of the economy and seek to cut rates at the earliest opportunity."
GLOBAL RECESSION OR REALITY CHECK?
-Technology, Media and Entertainment deals down by 41% -
UK M&A activity for the technology, media and entertainment (TME) sector has fallen to its lowest six monthly level since 1999, according to research published by KPMG Corporate Finance.
The survey, prepared from data supplied by Dealogic¹, shows the total value of UK deal activity in the sector has fallen dramatically from a peak of £145bn in 2000 to just over £26bn for the first half of 2001. The giant £107bn Vodafone/Mannesmann transaction in the first half of 2000 accounted for much of this drop in total deal value, however there was also a 42% fall in deal numbers - 7609 to 434 this half. The only significant deal in the UK marketplace so far this year was BT's acquisition of Viag Interkom completed in January for a total of £8.5bn.
Michael Higgins, Head of Technology, Media and Entertainment at KPMG Corporate Finance, comments: "The level of M&A activity in the first half of 2000 was never sustainable. The recent realignment of values, particularly in the telecoms sector, will create opportunities for financially robust companies with respected management. Whilst this may lead to a rise in deal numbers, the value of M&A activity will only recover when the next wave of strategic consolidation occurs."
In global terms the TME sector had a tougher time with a decline by value of 65% (55% excluding Vodafone) from £643bn in the first half of 2000 compared to £221bn this half. Globally the top deal this year was America Online's purchase of Time Warner for £58bn in January.
TME was not the only sector to experience the steep downturn with overall M&A activity in the UK dropping by 70% since 2000 to £78bn this half, and by 26% in volume, with 1456 deals completed so far this year.
Alongside TME, the financial services sector also failed to record any significant deals in the UK so far this year. By contrast some traditional sectors, namely chemicals and pharmaceuticals, construction, leisure and utilities showed modest increases.
"It is unsurprising that we are now seeing a more realistic level of activity in the technology-driven industries and a marked recovery in traditional industries. There are now real value propositions behind transactions more in line with traditional activity. " commented Higgins.
He continued: "What is clear is that M&A is now predominately an international business - this year cross-border deals accounted for 79% of the total value of UK M&A activity and 90% of the technology, media and entertainment industries."
For the last two years the UK has been responsible for the highest cross-border spend at the half year point but this year it has fallen to third place with £29bn behind Germany (£35bn) and the US (£34bn).
Investment from overseas into the UK this year has also fallen compared to the first half of 2000. However, M&A levels are lower the world over and this year the UK is the second largest target for overseas bidders (£33bn) after the US (£70bn).
"Despite the downturn in activity levels the UK remains a key economy in the global M&A market and a key centre in Europe." Higgins concluded.
RETAIL SALES ROBUST - CBI SURVEY
Retail sales volumes remain robust, though there are signs of a cooling in activity in July, according to the CBI's latest Distributive Trades Survey.
Some 55 per cent of retailers said their sales were up in June compared with a year ago, while 25 per cent said they were down. Underlying demand from consumers remains robust on a three-month moving average. However, retailers expect a slight easing in growth on the horizon with sales likely to grow more slowly in July.
Footwear & leather, grocers and household goods shops experienced substantial growth in sales. Significant sales increases were also enjoyed by sellers of books and hardware, but there were weak spots, with furniture sellers and off licences suffering sharply lower volumes than a year ago.
"Retail sales are remaining healthy but sales are now becoming normal for the first time this year. Retailers are experiencing a mild slowdown in growth, but it is too soon to be sure that consumers are spending less freely," said CBI's Head of Economic Analysis Sudhir Junankar. "We can see a comfortable and manageable level of growth that, at this stage, is not pointing to an inflationary boom," he added.
The positive balance of 30 per cent in June retail sales continues the strong trend seen in that sector since November 2000. Nevertheless, stock levels were run down in June and they continue to be more than adequate for expected sales.
The latest survey also shows a rebound in motor sector sales from a surprising fall in May. On balance, 46 percent are now positive against 21 per cent of motor traders being negative in May.
The overall picture from the survey shows a continuation of the slowdown in volume of sales seen since March in distribution as a whole due to weakness among wholesalers. Their sales expectations for July turned negative at minus 31 per cent compared with plus seven per cent, reflecting weakness in agricultural machinery, clothing and footwear and a sharp slowdown in electrical installation materials.
UK IPO MARKET STICKS AT ALL TIME LOW
The UK IPO market remains inactive at the half year mark according to a report by KPMG Corporate Finance. The latest survey shows no improvement in activity levels since flotations came to a virtual stop at the start of the year.
Only six trading companies have joined the main market in the last six months raising a total of £5.10bn - a figure dominated by the dual listing of Orange in February which raised £3.99bn. Caffe Nero plc (£9m) Michael Page (£670m), Marlborough Stirling (£66m), Aortech (£20m) and PHS Group (£338m) were the other trading companies to list.
In total there were 40 newcomers raising £6.83bn plus 10 introductions. However, the bulk of activity was made up of investment trusts and VCT launches - 34 vehicles seeking to raise £1.73bn.
Neil Austin, Head of New Issues at KPMG Corporate Finance, comments: "We are now half way through the year and the main London market remains dormant. High quality companies with a strong story can find an appetite but usually only at the lower end of their valuation expectations. As long as we see profit warnings, earning downgrades and general economic uncertainty the markets are unlikely to budge."
The change in the market can be illustrated by a comparison with last year. Although the total amount of money raised is some £6.8bn compared with £3.7bn for the first half of 2000, the number of IPOs by trading companies has dropped from 28 to 6. This change shows that investors are now generally investing in a few large companies such as Orange which constituted 60% of the total so far this year (£6.8bn).
More surprising was the increase in the number of investment trusts and VCTs compared to the same period last year. Although the amount raised was similar to last year's £1.81bn, numbers were up from 21 to 34 - a relatively buoyant half-year given the weak performance of the stock market overall.
Looking at all markets across Europe, the second quarter has shown an improvement with new issue numbers climbing by 56% and total money raised up by 37% compared to quarter one according to figures released by Dealogic . However the region is still only a third of the way to restoring IPO levels to those seen in first half of 2000.
The most active markets in the first half of 2000 are all showing a decline this year. These include UK, Germany, France and to a lesser extent Italy, Sweden, Norway and Switzerland. Germany fell the furthest with the Neuer Markt registering only 10 entrants raising €507m compared to 79 during the first half of last year raising €11.1bn.
"The UK IPO market is still fragile - a situation which is reflected across Europe," comments Austin. "A few large established companies such as Orange and Inditex have found investors willing to buy reasonably priced shares but for the majority of aspiring companies the markets remain closed."
Looking ahead he concludes: "We are now looking to the Autumn for signs of a recovery. Even this will depend on economic indicators and corporate results signalling an improvement in the stock market climate. Forecasts of any upturn before then would be premature."
NEW CONSTRUCTION ORDERS: MAY 2001
Orders in the three months to May 2001 fell by 11 per cent compared to the previous three month period, with falls in all sectors except public non-housing. This was due mainly to the high results reported in January and February. Orders in the year to May 2001 rose by seven per cent compared to the previous year but orders in the three months to May 2001 fell by two per cent compared to the same three months a year earlier.
Private housing orders in the three months to May 2001 fell by one per cent compared with the previous three month period and were seven per cent lower than the same three months a year ago. Orders in the year to May 2001 fell by seven per cent. Public housing and housing association orders in the three months to May 2001 showed a fall of 27 per cent compared to the previous three month period, but rose by nine per cent compared to the same three months a year earlier. Public housing and housing association orders in the year to May were unchanged when compared to the previous twelve month period. All comparisons in this sector are affected by large variations due to its relatively small size.
Infrastructure orders in the three months to May 2001 were 30 per cent lower compared with the previous three month period, and were 13 per cent lower than in the same three months a year earlier. Orders in the year to May 2001 rose by 14 per cent compared with the previous twelve month period.
Public non-housing orders (excluding infrastructure) in the three months to May 2001 were eight per cent higher compared with the previous three month period, and nine per cent higher compared to the same three months a year earlier. Orders in the twelve months to May 2001 were five per cent higher when compared with the previous twelve month period.
Private commercial orders in the three months to May 2001 were four per cent lower compared to the previous three month period but four percent higher than in the same three months a year earlier. Orders in the twelve months to May 2001 were 16 per cent higher than in the previous twelve month period. Private industrial orders in the three months to May 2001 were 18 per cent lower than in the previous three month period, and were four per cent lower compared to the same three months a year earlier. Orders in the year to May 2001 were five per cent lower than in the previous twelve month period.
LAND REGISTRATION BILL RECEIVES SECOND READING
The Land Registration Bill received its second Reading in the House of Lords on 3 July.
Baroness Scotland, Parliamentary Secretary at the Lord Chancellor's Department, said "The potential benefits to the public of these changes are likely to be enormous. The register would give a clearer picture, about more land. The numbers of burdens on land hidden from the register would reduce. The formal documents changing ownership could be completed electronically, and take instant effect, something that cannot be done at present. This would speed up buying and selling considerably and should make it cheaper, more certain and less stressful. The Land Registry would also be able to publish more information about the property market, encouraging transparency and efficiency"
The Bill represents the outcome of several years' joint work by the Law Commission and HM Land Registry. In 1998 the Law Commission published a consultation document - "Land Registration for the Twenty First Century - A Consultative Document" (1998) Law Com. No. 254. It is the largest single law reform project undertaken in the Law Commission since its foundation in 1965.
The land registration system underpins the property market in England and Wales and guarantees title to some £2000 billion worth of property. Over 80% of titles are now registered, and the great majority of the 3 million property transactions each year involve registered land. However, the present legislation governing registration of title is complex, confusing and badly out-of-date. The Land Registration Act 1925 is largely based on an earlier Act of 1875 and there have been more than 300 rules made under the 1925 Act.
It is also based entirely on the premise that dealings with land will be conducted in paper form. The Bill would:
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EIAR EXECUTIVE SUMMARY AVAILABLE ON ECGD WEBSITE
The Environmental Impact Assessment Report (EIAR) on the Ilisu Dam project was published on the 3 July 2001.
The executive summary of the report is available on the ECGD website at www.ecgd.gov.uk Copies of the full report can also be obtained on CD-ROM.
Ministers will now analyse and assess the EIAR. No decision on Export Credits Guarantee Department (ECGD) cover will be taken until after this process has been completed.
Also, any comments from the public on the Ilisu Dam project, in the light of the EIAR, should be received by ECGD by 7 September 2001. These will be taken into account when the Secretary of State for Trade and Industry (SoS) comes to make her decision.
The former SoS Stephen Byers said that there would be no ECGD support for the project unless he was satisfied that the four conditions set in December 1999 have been met. The conditions are:
The current SoS maintains the same position and will only agree support if she is satisfied that the environmental and social impacts of the project are being properly addressed.
The public can obtain the full report on CD-ROM by writing to Ilisu Project, Export Credits Guarantee Department, PO Box 2200, 2 Harbour Exchange Square, London, E14 9GS, enclosing a cheque for £5 (five pounds sterling).
The above address should also be used to obtain a free paper copy of the EIAR executive summary, or by telephoning the ECGD on 020 7512 7900.
Also, any public comments on the Ilisu Dam project, in light of the EIAR, can be sent to ECGD by 7 September 2001 either by writing to the above address or by email to ilisueiar@ecgd.gov.uk
ECGD received the EIAR on 25 June 2001 from the consortium of companies - including Balfour Beatty - which is planning to build the dam. The final version of the EIAR was completed in April 2001. The export credit agencies - including ECGD - have now secured agreement to publish it.
In 1998 ECGD received an application from Balfour Beatty for export credit guarantee (insurance) support for their proposed involvement in the Ilisu Dam Project in Turkey.
The number of businesses going bust increased by more than 15% in the second quarter of this year (compared with the first quarter). However, the half-yearly toll has not yet exceeded last years figures for the same period according to the latest figures released last week by Dun & Bradstreet, the business information company. More small businesses appear to be failing while large company liquidations are continuing to decline.
Mr Philip Mellor, Senior Analyst at D&B commented: "Apart from London, it looks as though the trend which showed the rate of business failures dropping by more than 12% during the first part of this year has been reversed. Failures are now starting to climb upwards again. This rise is in part due to the drop in tourism and other adverse factors caused by the foot and mouth epidemic. There is evidence that business failures in the South West and North West of the country - the regions most affected - increased significantly during the second quarter of the year."
There have so far been 20,164 business failures in the first six months of this year which is 0.5% below the same figure for the first half of last year (20,264). These consist of 9,360 failures during the first quarter followed by 10,804 in the second quarter - an increase of 15.4% between quarters. In fact the 10,804 failure level is 13% up on the second quarter¿s figures in 2000.
The picture throughout the country is uneven. The largest increase in business failures over the six month period (compared with the previous year) has been in the North East where business failures have increased by more than 12%. In fact business failures during the second quarter in this region were two-thirds up on the first quarter. The second worst-affected area is Scotland where business failures have increased by 7%. They have also increased by 4.5% in the West Midlands.
While the South West and North West regions have shown a continuing decline in business failures of 9% and 1% respectively, second quarter figures for business failures were well up on the first quarter's figures in both regions. In the South West there were 1,243 business failures in the second quarter as compared with 851 in the first - an increase of 46%. In the North West there were 1,271 business failures in the second quarter as compared to 1,106 in the first quarter - an increase of about 15%.
The biggest decrease in business failures over the first six months was in Wales but here again business failures rose by 42% between the quarters from 304 to 432.
Smaller company bankruptcies appear to be responsible for the reversal of the failure trend. There were 11,694 business bankruptcies during the first six months of this year an increase of 1.7%. The rate of larger company liquidations continues to drop with a 3.4% decrease recorded down to 8,470 liquidations during the first six months.
BUSINESS RESCUE AND COMPANY INSOLVENCY IN BRITAIN
R3 has been conducting research into the causes and outcomes of insolvency for companies and individuals since 1991. Each year, several thousand cases are investigated in detail and the findings published in two separate annual reports (company insolvency and personal insolvency). The results of R3's most recent survey, the Ninth Survey of Business Recovery, can be viewed on line at www.r3.org.uk
BUSINESS RESCUE - THE PROBLEM
Even during times of economic stability some businesses begin to fail - some recover, some don't. Last year 14,318 companies entered one type of insolvency procedure or another and several thousand more will have sought help in avoiding insolvency.
Nearly 50% of company failures caused by poor management
R3's most recent survey demonstrates that nearly one in two insolvent companies fail because of poor management decisions. In 46% of cases financial or other managerial weakness are cited as the major cause of insolvency. Even amongst those companies that had experienced previous financial difficulties, nearly half did not seek advice early enough to prevent failure, an increase from 32% in the previous year. Overall, company preservation rates have dropped to 18%. In 77% of cases, help was brought in so late that there were no possible actions that might have realistically averted failure.
How much does this cost the economy?
Poor management leads to corporate failure and puts jobs at risk. Figures from the Ninth Survey of Business Recovery show that 520,000 jobs were put at risk and on average creditors lose 85% of their debt, primarily because bosses lack financial and managerial skills.
RESCUE CULTURE - CURRENT PERFORMANCE
There is still a widely held misconception that every insolvency means the end of a business whereas the reality is that nearly 1 in 5 companies undergoing an insolvency procedure survive and continue in business. In particular, R3's Ninth Survey of Business Recovery in the UK shows that, in company voluntary arrangement (CVA) appointments, company preservation rates have increased to 74% from 63% in the last survey.
Outcomes vary enormously according to industry sector. Hotel & Catering still has the highest preservation rate of any industry sector (28%), largely due to its higher asset base than other sectors making preservation easier. Similarly, where the insolvent company has a high asset base from machinery plant or property, preservation rates are higher (for example, manufacturing - 27% and Retail - 14%). Finance and business services have witnessed the greatest decline in preservation rates with a drop from 22% of companies preserved to only 2%. This drop might have been exacerbated by the introduction of the new category of IT.
For the first time, the IT sector has been analysed and has a preservation rate of 11%, perhaps indicating that often the greatest assets in these companies are its staff - the hardest asset to retain once a company hits financial trouble.
The survey shows that creditors who support a successful rescue are usually get much better returns than those they are likely to get in a liquidation. As with previous years, returns to individual creditor groups tended to be much higher from CVAs and administrations. Preferential and secured creditors were paid 100% of their debt in over 75% of CVA cases and 67% of Administration cases. For unsecured creditors, CVA cases had average returns of 50% - up from 43% in the previous survey, whilst administrations had average returns of 18% compared to 25% previously. Unsecured creditors received returns averaging 5% in liquidations in cases in our sample.
The unseen face of business rescue
Figures for the above types of statutory procedure are relatively easy to come by, but there is an entire area of corporate recovery work that is very hard to quantify. For those companies whose management (or banks) are quicker to recognise their problems, rectification can be a lot less public - all the more important if the company is listed or is highly dependent on public confidence.
With this changing marketplace in mind, R3 (or SPI as it was then) considered that it ought to represent those who work with underperforming businesses but who are not authorised insolvency practitioners. In January 2000, R3's members voted to expand the membership and to change the Society of Practitioners of Insolvency (SPI) to R3, the Association of Business Recovery Professionals, to include those who work with businesses in financial crisis not just those in insolvency. Also as a result of this vote, STP (Society of Turnaround Practitioners) was formed to facilitate the inclusion of the non-insolvency membership into R3.
For the first time, R3's most recent corporate survey examined the employment implications of informal turnaround cases. Nearly 98% of jobs potentially at risk were secured in turnaround cases undertaken by R3's members between 1998 and 1999. R3's members saved the Treasury over £200 million in unemployment benefits and nearly £300 million in income tax revenue through saving 100,000 jobs over the course of the year.
GOVERNMENT ACTIVITIES
Insolvency Act 2000
The Insolvency Act received royal assent on 30 November 2000, with the provisions coming into effect during the course of this year. Two of the main stipulations are:
'Opportunity for all in a world of change'
In February this year the Department of Trade and Industry and the Department for Education and Employment issued a joint white paper entitled 'Opportunity for all in a world of change'. The paper outlined proposals to promote enterprise, skills and innovation and set out the next steps for Government in helping individuals, communities and businesses to prosper. Chapter five made recommendations to reform insolvency law, including:
Joint Treasury and DTI working party on company rescue and business reconstruction mechanisms
The first consultation paper was published in November 1999. The review group published its second report on 2 November last year. The report made 16 specific recommendations across 6 broad subject areas:
DTI working party on bankruptcy
The proposals for bankruptcy review were announced in July 1999 and the consultation paper was launched on 7 April 2000. It reviews the extent to which bankruptcy laws: place undue obstacles in the way of entrepreneurs who have failed but want to try again; reinforce the stigma attached to business failure and thereby inhibit enterprise; could distinguish between responsible risk-takers and others. The proposals included:
WHO DOES THE WORK?
R3 does not issue licences, nor is it responsible for regulating practitioners, it provides training, information and representational services for the recovery industry as a whole. R3 encourages the highest standards from its members and plays a major role in developing common ethical standards and best practice guidelines for members.
Who regulates the profession?
There are currently 8 regulatory bodies who regulate and issue licences for R3's insolvency practitioner members. Additionally, the DTI acts as the regulator of regulators and can also issue licences.
FURTHER INFORMATION
For further information, please contact Smith Grundon & Partners:
Bella Pagan, tel. 0207 251 1500 or email bella.pagan@smithgrundon.co.uk
Octavia Goredema, tel. 0207 251 1500 or email octavia.goredema@smithgrundon.co.uk
R3 provides a range of publications, including company and personal insolvency surveys, advisory booklets and their quarterly industry magazine. These can be viewed on www.r3.org.uk.
WINDING-UP ORDER MADE - THE MANAGEMENT COMPANY (LONDON) LIMITED
A Winding-up Order was made against The Management Company (London) Limited in the High Court on the 27 June 2001
On 14 May 2001, the Secretary of State for Trade and Industry presented a petition to wind the company up in the public interest. The petition followed an investigation under Section 447 of the Companies Act 1985. On 16 May the Court appointed the Official Receiver provisional liquidator pending the hearing of the petition.
The Management Company (London) Limited traded as an insurance intermediary placing travel insurance schemes with insurers. The documentation provided to travellers showed the insurance to have been placed with Lloyds of London ("Lloyds"). Latterly a dispute has arisen between the company and the syndicate over whether cover has been placed.
Travellers who are concerned about the validity of their travel insurance cover are strongly advised to check with their travel agent before travelling.
The Management Company's registered office is at Bridge End House, Low Lane, Horsforth, West Yorkshire LS18 5DF. The principal trading address was at 150 Minories, London EC3N 1LS.
The DTI carries out confidential enquiries under Section 447 of the Companies Act 1985 and where necessary, takes further proceedings in the name of the Secretary of State. This can include winding up proceedings in the public interest or disqualification proceedings against directors.
The petition was presented under Section 124A of the Insolvency Act 1986.
All public enquiries concerning the companies should be made in writing addressed to:
The Official Receiver
Public Interest Branch
21 Bloomsbury Street
London WC1B 3SS
*** FORTHCOMING CREDITORS MEETINGS ***
For detailed information on all the British Isles insolvency's (liquidation's, receiverships, administrations, dividends, creditors) please visit http://www.insolvency.com/cgi-bin/gazette/liq/nots.pl
TW LW TW LW
USA 1.41 1.42 Canada 2.14 2.15
Austria 22.02 22.63 Portugal 335.46 329.84
France 10.97 10.79 Belgium 67.50 66.37
Finland 9.94 9.78 Italy 3240.00 3185.65
Germany 3.27 3.21 Sweden 15.50 15.22
Holland 3.68 3.62 Switzerland 2.54 2.50
Spain 278.42 273.74 Ireland 1.31 1.29
Australia 2.77 2.73 Denmark 12.46 12.26
Hong Kong 11.05 11.09 Euro 1.67 1.64
Africa Com 11.36 11.39 Saudi Arabia 5.31 5.33
India 66.85 66.83 Malaysia 5.38 5.40
Singapore 2.58 2.58 Norway 13.33 13.02
Japan 175.96 176.91
TW This week LW Last week.
Lukoil, a Russian oil company that does business in Iraq, Iran and Sudan among other places, switched a planned share offering from New York to the London Stock Exchange. The company wishes to avoid possible action against it by America's government for trading with regimes of which the Americans disapprove.
Belgium's government threatened to take legal action to force Swissair to take over Sabena, a struggling state-controlled airline. Swissair owns 49.5% and had promised to increase its stake to 85%. The Swiss airline, deeply involved in several loss-making French airlines, offered some cash to get out of the commitment; Belgium said "not enough".
United Airlines and US Airways admitted that they had begun talks aimed at terminating a merger that would have created the world's largest airline. The deal, announced over a year ago when business was booming, has lost much of its shine and would have faced considerable regulatory resistance.
KLM Royal Dutch Airlines said that profits for the latest quarter would be far below the EURO100m ($87m) enjoyed a year ago. Passengers and cargo have dwindled alongside the world economy.
British Telecom and AT&T pulled the plug on Concert, a loss-making joint venture providing bulk telecoms services to big companies. Both companies have business-telecoms divisions which unavoidably came into competition with the lacklustre joint venture.
Shares in Marconi, the large British telecoms company, collapsed on July 5th. They had been suspended the previous day while the board discussed a profits warning. The company says profits will fall by half this year and 4,000 jobs will go in addition to the 3,000 cuts announced earlier this year.
Source - The Economist
Bespak announced pre-tax profits of 14.1 million pounds, on turnover of 78.7 million, for the year ending 27th April 2001. Earnings per share stand at 41.6p.
Birse, the construction group, announced pre-tax losses of 29.7 million pounds, after exceptional charge, on turnover of 423.4 million, for the year ending 30th April 2001.
Druck, manufacturers of electronic controls, announced pre-tax profits of 14.6 million pounds, on turnover of 76.1 million, for the year ending 31st March 2001. Earnings per share stand at 14.3p.
Mentmore Abbey, providers of storage space and services, announced pre-tax profits of 15.3 million pounds, on turnover of 75 million, for the year ending 30th April 2001. Earnings per share stand at 6.2p, on increased capital.
Somerfield, the supermarket group, announced pre-tax losses of 13.1 million pounds, after exceptional charge, on turnover of 4,613 million, for the year ending 28th April 2001.
MERGER NEWS
The Secretary of State for Trade and Industry has decided, on the information at present before him, and in accordance with the recommendation of the Director General of Fair Trading, not to refer the following merger/s to the Monopolies and Mergers Commission under the provisions of the Fair Trading Act 1973:Proposed acquisition by Abbey National plc of certain assets of Robert Fleming & Co Limited, namely Fleming Premier Bank
OFT CONSULTS ON INTERBREW/BASS BREWERS REMEDIES
The OFT is inviting third parties to comment by 18 July on the merits of four proposals as potential remedies of the adverse competition effects arising from the acquisition by Interbrew SA of the UK brewing interests of Bass PLC (Bass Brewers).
The full consultation document can be found at www.oft.gov.uk/html/new/interbrew.htm
The four proposals are:
The Bass Brewers remedy
Originally recommended by the CC and the Director General and accepted by the Secretary of State, this requires Interbrew to divest the entire UK brewing interests of Bass Brewers to a buyer approved by the Director General.
The Carling Brewers remedy
Interbrew would retain Bass Brewers in Scotland and Northern Ireland, the breweries at Glasgow and Belfast and the Tennent's and Bass Ale brands. The remainder of the Bass Brewers UK business, including the Carling brand, together with the Scottish element of Bass Brewers' national beer supply contracts, would be sold to a buyer approved by the Director General.
The International Brewer remedy
Interbrew has proposed this as an alternative remedy intended to strengthen any international brewer already represented in the UK market. The proposal is that Interbrew divests the Scottish and Northern Ireland businesses of Bass Brewers including: existing rights to the Tennent's, Grolsch, Caffrey's, Worthington and Stones brands (or some other appropriate brand combination), with the necessary supporting brewing capacity, beer supply agreements and certain distribution assets. Interbrew would retain the Carling, Bass Ale and other minor brands and some brewing capacity. The proposal could also include the disposal by Interbrew of Bass Brewers' Interest in Tradeteam to a non-brewer.
The Whitbread Brewing Company (WBC) remedy
This would require the divestment of the former WBC business together with licence rights to the Stella Artois brand to a buyer approved by the Director General.
Questions for consultation
The key questions on which comments are invited are:
Representations should be sent in writing or by e-mail to: Bob Gaddes, Mergers Branch, Office of Fair Trading, Fleetbank House, 2-6 Salisbury Square, London EC4Y 8JX - E-mail: bob.gaddes@oft.gov.uk
The adverse effects of the merger were identified by the Competition Commission (CC) in a report published on 3 January 2001 (Cmd 5014). The CC concluded that the acquisition might be expected to operate against the public interest and have the following adverse effects in Great Britain:
Interbrew sought a judicial review of the remedy on the basis that it was unreasonable and disproportionate and based on unfair procedures. On 23 May, the High Court in London rejected Interbrew's main challenge but held that the CC's procedures had been unfair, since they had not given Interbrew the opportunity to comment on one of the issues of concern regarding the possible divestment of the Whitbread Brewing business. In essence, this was the concern arising from the 'dual capacity' position that Interbrew would hold both as owner of and licensor to Whitbread of the Stella Artois premium lager brand and, though its ownership of Bass, as a major competitor to that brand within the GB market. As a result, the court quashed the decision of the Secretary of State. The court also quashed paragraphs 2.209-2.219 of the CC report (together with the consequential amendments to Chapter 1 of the report), which dealt with the consideration of the possible structural remedies to address the adverse effects of the merger. The court remitted the question of such remedies back to the Secretary of State for reconsideration, with such assistance as was considered appropriate from the Director General. It is important to note that the court's decision did not quash the Competition Commission's analysis of the adverse effects of the merger.
The intention is that the Director General will publish his advice to the Secretary of State at the time of the announcement of the decision on remedy. Respondents should, therefore, indicate any parts of their comments that are commercially confidential.
COMPETITION COMMISSION'S INVESTIGATION CLEARS REED ELSEVIER/HARCOURT GENERAL MERGER
The Competition Commission has found that the proposed acquisition of the US company Harcourt General, Inc. by Reed Elsevier plc is not expected to operate against the public interest.
Publishing the Commission's report, Melanie Johnson, the Minister for Competition, said:
" The Commission concluded that the only parts of the businesses of Reed Elsevier and Harcourt with the potential to give rise to competition concerns were their sales of science, technical and medical (STM) journals, in both printed and electronic formats, in the UK. It identified three aspects of the market that raised potential public interest concerns:
However, a two thirds majority of the Commission members carrying out the inquiry concluded that although these aspects did raise concerns, they did not lead to an expectation that the proposed merger would operate against the public interest.
The Commission found that the rate of change in the provision of electronic access to STM journal content was so rapid and the nature of current arrangements with customers was so fluid that there was at present insufficient experience to provide evidence that the merger would be likely to increase the pricing of access to Reed Elsevier's electronic services.
With regard to linkages with other electronic platforms, the Commission received no evidence that Reed Elsevier had denied competitors links with its ScienceDirect platform, despite its already very strong position in electronic publishing. Reed Elsevier's stated policy was to allow other publishers' databases and any other STM access formats in existence or under development to link with ScienceDirect content by means of industry standard IT mechanisms agreed for the purpose. The Commission did not have an expectation that the addition of Harcourt's journal titles to Reed Elsevier's portfolio would lead to any adverse changes in behaviour in this area.
On pricing, Reed Elsevier told the Commission that its existing commitment to hold average increases in annual subscription rates to below 10 per cent would be extended to cover all the Harcourt journal titles acquired under the proposed merger, leading to a reduction in their current rate of annual price increases. The Commission considered that this price pledge-for as long as it was honoured-provided reassurance. As Reed Elsevier was not the only STM publisher that charged high prices, the Commission did not consider that it was likely to raise the price of Harcourt's journals more steeply than any other potential acquirer if the proposed merger did not take place. The Commission did not therefore expect the merger to lead to an increase in the price of Harcourt's journals above the levels that might otherwise have occurred.
Although the CC did not make an adverse finding, it commented that some aspects of the STM market raised concerns, and it invited the Director General of Fair Trading (DGFT) to consider whether a wider review of the market is necessary. This is a matter for the DGFT, who has powers under the Competition Act 1998 to investigate possible abuse of a dominant position or anti-competitive behaviour, and powers under the Fair Trading Act 1973 to refer a market to the CC for investigation if he believes that a monopoly situation exists. The DGFT will today issue a statement today inviting comments from third parties in order to assist his consideration of whether or not a wider review is necessary."
The proposed acquisition of Harcourt General, Inc. by Reed Elsevier plc was referred to the Competition Commission for investigation and report by Kim Howells on 21 February 2001 in accordance with the advice of the DGFT (DTI Press Release P/2001/92).
Harcourt General, Inc. is a US holding company for a group of publishers of academic books and journals that also provide a range of other products and services in the fields of education, training and assessment. Reed Elsevier plc is an international company registered in the UK. It is jointly owned by Reed International PLC and Elsevier NV. Its principal activities include publishing a variety of academic and other titles, organising exhibitions and seminars, producing materials for the study of English and providing services for the travel industry.
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