Jeremy Warner's Outlook: Why bother with another British Energy IPO? It would be so much simpler to sell EDF the lot

McCarthy & Stone: break-fee muddle; City succeeds just fine on its own

Oh no, not another British Energy IPO. This was the company, privatised along with Railtrack at the fag end of the last Tory administration, that was thought so noxious to public opinion that it dared not speak its real name as the repository for the remaining rump of Britain's nuclear power industry. It is perhaps no accident that both companies subsequently went bust.

With energy prices now at record levels and nuclear power suddenly everyone's preferred solution to climate change and security of supply, British Energy's stock is once more riding high. As a consequence, the Government is preparing to offload at least some of the 65 per cent shareholding it received as part of a complex rescue three or four years back in which it accepted liability for the company's £5bn of decommissioning costs.

With the shareholding today worth something in the order of £6bn, the Government is finally in the money again. Given the chance it would sell the lot and be sure of covering the decommissioning liabilities. Given the history, it may struggle to sell even the planned £2bn of stock. Having been bitten once, many investors will fight shy, notwithstanding nuclear's renaissance. Things look fine now, but what happens if electricity prices again collapse?

One way of securing full disposal would be to sell to EDF. The French energy giant is keen to introduce the Brits to France's superior record in building and running nuclear power stations. Alistair Darling, the Secretary of State for Trade and Industry, appeared to rule this out yesterday by referring to a capital markets solution to the Government's planned share sale.

Yet if the price was right and EDF is willing, could the Treasury resist? For some, being beholden to Britain's historic enemy for power supply might seem no better than reliance on the Russian bear, yet looked at practically, it would be a neat solution to the problem and might even ensure the hoped for new generation of nukes is actually built.

McCarthy & Stone: break-fee muddle

I've long been against the modern takeover practice of "break fees", but the board of McCarthy & Stone has taken the requirement to new heights by agreeing both to pay a break fee to one of its three suitors but signing a legally binding agreement not to offer the same inducement to anyone else.

No one can blame Permira for hitting on this wizard wheeze, which obviously puts it at a significant competitive advantage to the rival suitors - a Bank of Scotland led consortium that includes the Reuben brothers and the Scottish entrepreneur, Sir Tom Hunter, and a separate consortium led by the Tchenguiz property tycoons. But should the board ever have agreed such a thing?

The justification for break, or inducement fees - in this case £10m - is that they help persuade otherwise reluctant bidders to come to water. The bidder can put a firm offer on the table, confident in the knowledge that should he eventually be outbid, at least he'll be able to cover his costs. Yet also to agree that no such fee will be offered to anyone else, as has occurred here, is extremely unusual.

Yesterday the Reuben consortium called the McCarthy & Stone board's bluff by saying that it would have outbid Permira with a firm, £10.30 a share offer had a similar break fee been available to them. But because of its agreement with Permira, McCarthy & Stone is in no position to offer such an undertaking, leaving it in the invidious position of having to stick with an inferior offer. In justification, McCarthy & Stone insists that agreement to such terms was the only way of securing certainty from Permira. At the time of agreement, it was still unclear whether the Reuben consortium would come up with the goodies.

Even so, the board is left looking pretty silly now. Whatever it does, it risks being sued - either by shareholders for breaching fiduciary duty to secure the best terms, or by Permira if it breaks the agreement.

This mess could have been avoided if the Takeover Panel had acted as it should have done to outlaw the practice way back when. For a company to offer any inducement to buy its own shares is technically illegal under the Companies Act. It is only allowed because of the panel dispensation, which sanctions inducement fees of anything up to 1 per cent of the value of the bid. It may be legal, but it doesn't mean it is right. The risk of failure should always be born by the bidder, not the target

City succeeds just fine on its own

Globalisation... high level stakeholders from business and government... steering group... blah... step change in efforts... blah... multi-tasking... blah... team UK message... blah... targeted approach to improvement... blah... market failure... blah, blah blah, yawn. No wonder the Chancellor was forced to press release his latest initiative to promote the City in two newspapers yesterday by persuading them they'd secured a scoop. Few others are going to take any notice of this restatement of the mundane, obvious and inane.

Time was when Labour governments would routinely attack the City for failing to support British industry as required. Royal Commissions were appointed and the gnomes of Zurich, the then equivalent of today's hedge funds and private equity players, were roundly condemned for undermining economic policy and destroying jobs.

Today's lot have at least realised that the City is an industry in itself, and a rather successful one at that which may account for as much as a fifth with associated services of the entire UK economy. It is thus a place to be nurtured and encouraged, not, as in the past, attacked. The City's role, negative or otherwise, in UK manufacturing is today largely irrelevant, for we've no longer got much of a manufacturing sector left. Yesterday's smokestacks have been replaced by the air-conditioned skyscrapers of international capital markets as the key drivers of prosperity and wealth.

Keen to claim credit for any success, the Treasury identifies the Financial Services Authority as a key part of the modern day City's vitality. There may or may not be an element of truth in this claim, and it is certainly the case that the Government's willingness to maintain the City's tradition of openness and free trade has been a boon. Yet the reality is that the City has succeeded despite the Government, and not because of it. There are few "market failures" which if addressed by policymakers would much improve matters.

The Government's "let's go and promote the City" initiative was part of a package of documents and public policy suggestions published yesterday to justify its own intervention in international trade and investment. I don't want to be unkind to those who have spent many months toiling away in preparation, but what is the point of this great outpouring of hot air and gobbledygook?

Yes, Britain has been lamentably slow and poor in exploiting the new opportunities opened up by China and India, though as it happens not in financial services. If all this well-intentioned candyfloss helps restore some pride and purpose to that forgotten backwater of the diplomatic corp, the trade attaché's department, then it might actually serve some purpose.

Other countries are much better at this sort of stuff than Britain, presumably because winning orders on the global stage is seen as more important than the apparent British priority of playing power politics in the Middle East or some such other military flashpoint.

What good is this to British industry and the City? What good is it to anyone? And why has the Government chosen to focus its promotional efforts on the one bit of British commerce which seems to need no help whatsoever - the City? Yo, Blair.

On nights when tiredness makes bedtime reading more of a chore than a pleasure, I'll take to reciting this gloriously meaningless document to my six-year-old daughter. It will have her snoring like a trooper within seconds.

j.warner@independent.co.uk