Jeremy Warner's Outlook: The MoD reckons it is making progress on cost overruns. It is, counting sleight of hand

Mystery man targets Mirror group titles; Corus share price runs ahead of itself

Well that's a relief. You'll be pleased to learn that taxpayers' money is safe in Lord Drayson's hands. Other departments may routinely go hugely over budget on any big spending project they undertake, but round at the Ministry of Defence, where Lord Drayson is the minister for defence procurement, costs are now under control, with the department both living within its means and delivering top-class equipment to the troops.

That, in any case, was the message that Lord Drayson chose to draw from yesterday's National Audit Office report on the department's lamentable record of keeping to budget and on schedule for big spending projects. And to be fair, there is some faint praise from the NAO for the progress made in controlling costs and reducing delays. Even so, the bald figures still don't make reassuring reading. The size of the cost overrun across the £27bn of projects examined is still 10 per cent and the cumulative delay is a staggering 36 years.

What's more, most of the savings achieved are down to shifting the costs on to other budgets within the department, which means there is no net saving at all on the department's budget as a whole. A fair slug of the rest has been achieved simply by cutting the size of the order. It's debatable as to whether this penny-pinching amounts to a genuine saving. More sleight of hand, I would say.

Yet the biggest joke is that we are not allowed to know what the degree of overspend is at all on the MoD's largest item of expenditure - the Eurofighter. This was budgeted to cost £16.7bn. The cost overrun to date, which we can only assume is already hum-ungus, as well as the estimated overrun to completion are both said to be too commercially sensitive for the general public to get sight of. It might give Lord Drayson a warm glow in the stomach each morning just to think of the illusory savings he's making by juggling and hiding the budgets, but it is not very reassuring to the rest of us.

Mystery man targets Mirror group titles

The mysterious Marcus Evans, organiser of such delights of the international conferencing scene as the third annual convention of energy warfare (subtext: to protect forces through use of lethal and non-lethal directed energy weapon systems), has once again surfaced as a possible bidder for Trinity Mirror's national newspaper titles.

Only this time, he's reported to be bidding £200m less than two years ago, when he first threw his hat into the ring. The titles have admittedly continued to lose circulation since then and, like everyone else, they've suffered badly from the downturn in the advertising market. What's more, the Trinity Mirror board has hired Rothschild to conduct a strategic review, which is normally corporate code for some if not all of the assets being put up for sale. If Sly Bailey, the Trinity Mirror chief executive, has an alternative strategy, it's not entirely clear what it is.

By general agreement, she's been successful in tidying the company up and cutting the costs, producing decent levels of profits growth. But the top line continues to look problematic and unlike Daily Mail & General Trust, where there is a clearcut strategy to reduce dependence on UK newspapers, there's not much of a sense of where this company is heading.

Even so, Mr Evans is not going to succeed at his reported £600m price. Quite why he wants to buy the titles is in any case as mysterious as the man himself. As you might expect of someone who organises arms and military conferencing, Mr Evans keeps a very low profile. If he ever succeeded in buying the Mirror, he'd be catapulted into the limelight in a manner no other business is capable of.

Perhaps that's what he wants, but it seems unlikely. I've no idea what his politics are, but again they may not sit entirely happily with a paper whose traditions lie deep in old Labour, working-class culture. He'll also have to join the queue. Trinity Mirror has had lots of expressions of interest, both for the national titles and the regionals, since it announced the strategic review.

The UK newspaper industry may be in gentle decline, but, properly managed, it can still be highly profitable. The returns generated by some regional newspaper groups, as well as some national titles, are mouthwateringly high.

However, circulations are under pressure throughout the Trinity Mirror group, and unlike Daily Mail & General Trust, which yesterday reported a gentle recovery in some sectors of the national advertising market, there's little evidence of any advertising revival at Trinity Mirror.

Even so, I doubt the titles would go for as little as £600m in an auction. They make decent profits, and the Mirror in particular is still an immensely powerful brand. That's going to attract private equity and trophy asset buyers alike. If a buyer as unlikely as Mr Evans is targeting these titles, there are bound to be more obvious financiers and entrepreneurs keen to buy the influence and access that national newspaper ownership can bring too.

All that said, the high watermark for newspaper valuations, at least in the mature West, may already have been and gone, as Daily Mail discovered to its embarrassment when it attempted to sell Northcliffe Newspapers. It is still debatable as to whether the industry is in serious structural decline. Much of the evidence doesn't actually support this contention. In emerging markets, newspapers are still a growth industry, while, even in the developed West, rumours of their death are much exaggerated. The perception, wrong-headed though it may be, is none the less of an industry in terminal decline.

Yet I'll eat the press release if Mr Evans emerges as the successful buyer at £600m. It would be a steal at that price.

Corus share price runs ahead of itself

Shares in Corus are priced for the outbreak of a bidding war between India's Tata and Brazil's CSN. At last night's closing price of 506p, they are already a good way ahead of CSN's mooted, but not yet delivered, bid of 475p, and miles in front of Tata's 455p, which is so far the only real bid on the table.

I may have to eat a second press release, but here's why I'm sceptical. Tata is culturally exceptionally averse to entering any kind of contested takeover battle, and with good reason. Experience shows that the victor nearly always ends up overpaying.If CSN had bid first, Ratan Tata, chairman of the Tata business empire, would never have entered the fray at all.

Given the amount of work he's already put into cementing a relationship with the Anglo-Dutch steel group, he might be prepared to pay a little bit more, but my hunch is that his limits may not be far away from what's already on the table.

As for CSN, it has credible financial backers, but the structure of the bid is an even more leveraged, and therefore dangerous, one than Tata's. The ratio of debt to equity in the Tata bid is roughly 3 to 2. With the CSN offer, it is 4 to 1. Pension fund trustees will as a consequence demand much greater security from CSN than they are from Tata. That will further increase the cost of the takeover to CSN.

The Brazilians have made much of their claimed ability to supply cheap iron ore to Corus's blast furnaces, giving them significantly bigger synergies than Tata. Whether they are in practice in a position to do this is openly challenged in many parts of the industry.

In both bids, the intention is to secure the debt against the cash flows of Corus itself, thereby ring-fencing the bidder from the liability. Yet the Tata group as a whole is a much bigger enterprise than CSN, with hugely superior asset backing. It is impossible to believe that, in the event of default, it wouldn't move to protect its equity investment in Corus.

The ability of CSN to do the same thing in similar circumstances is more open to question. That again is going to make the pension trustees and, more particularly, the pensions regulator, extremely nervous. The pensions issue could yet scupper the bidding auction so eagerly anticipated by the hedge funds.

j.warner@independent.co.uk