Outlook: Hugh Osmond on the prowl for weapons of Bass destruction

Cartel busting; King's conversion; Cult of bonds

Hugh Osmond, the serial entrepreneur, has cast his rock in the Six Continents pond; now he must wait to see what waves he creates, but judging by the reaction of shareholders in the hotels and pubs group yesterday, he stands an excellent chance of success.

Mr Osmond's offer, if it comes off, would be largely in the form of shares in his quoted investment vehicle, Capital Management and Investment. CapMan would then be used to break the company up, with the assets sold off to a variety of different private equity and trade buyers and the money returned to shareholders. Some kind of a quoted rump might remain. Alternatively he might keep the lot, and do what Six Continents has patently failed to do - make the assets sweat.

It is hard for investors to be unequivocally positive until they know precisely what it is they are dealing with, but the level of disillusionment with Six Continents and its demerger plans is such that almost anything that doesn't obviously fleece them might be acceptable. The proposed demerger of hotels from pubs has failed to excite anyone, while the costs of the exercise - more than £200m once the early redemption of debentures is taken into account – has appaled many.

Management remains largely the same after Six Continents does the splits, prompting many to ask why bother. The demerger proposals are a deeply disappointing response to demands for value enhancement. Six Continents is a hugely asset rich company, but it's failed to deliver the goods. In such circumstances, what's required is management change, not cosmetic restructuring.

Sir Ian Prosser, Six Continents' chairman, blames the bear market for the degree of hostility he's encountering from his own shareholders, and on one level he's right. It's hard to think of a single company right now where investors are entirely happy. There's a big difference, however, between the backdrop of general disillusionment with equity investment on the one hand, and poorly performing companies like Six Continents on the other. This is a company with big, stable businesses in market leading positions which should simply be doing a whole lot better than it is.

For similar corporate raids from the past look no further than Jimmy Gulliver's bid for Distillers, or Sir James Goldsmith's junk bond assault on BAT Industries. Even so, it's hard to think of precedents for the audacity of Mr Osmond's plans. If he pulls it off from such an apparently small capital base, it would be a first. The City just loves a bid battle, but it particularly loves the cheek and boldness of assaults like this one. Let the entertainment commence.

Cartel busting

John Vickers, chairman of the Office of Fair Trading, has taken his time in using the cartel busting powers he was granted in the Competition Act nearly three years ago, but finally he's found some cartel suspects to bust, and he's hit them with fines large enough to please even the most demanding of his political masters. Mr Vickers can only hope he's got his facts straight, because both Argos and Littlewoods were vehemently disputing them yesterday, and unless they are telling porkies, Mr Vickers may have a problem making the charges stick.

The allegations of price fixing come from the US toy maker Hasbro, which apparently 'fessed up to the OFT about fixing prices with Argos and Littlewoods after being fined nearly £5m last November in a separate case involving distribution of Action Man and Sindy dolls. For this information, the OFT waived a further potential fine of £15.6m against Hasbro. Both Argos and Littlewoods say they have searched their files, examined their e-mails, interviewed their staff and listened to all their taped telephone calls, but still they can find no evidence whatsoever of illegal price fixing agreements with Hasbro.

Now it could be that the OFT has got some kind of smoking gun that the two retailers are unaware of. Let's hope it's a bit more impressive than the evidence so far produced of Saddam's weapons of mass destruction, for Mr Vickers should know as well as anyone that any case based solely on Hasbro's say so, without corroborating evidence, won't hold water. It's all very odd, but then making unsubstantiated allegations seems to be becoming a bit of a habit with government.

King's conversion

We've already had the main explanation for that unexpected quarter point cut in interest rates; last week's Inflation Report revealed that the Bank of England has significantly reduced its long term forecast for growth. Minutes of the Monetary Policy Committee meeting, published yesterday, none the less still held a surprise. Mervyn King, the Bank's arch hawk, has apparently joined the doves.

The MPC was split on the rate cut decision earlier this month, but for a change, Mr King voted with the majority for reduced rates, even though two colleagues wanted them left on hold. I say for a change, but in fact Mr King has voted with the dovish tendency before when the Committee was split.

However, it's a rare event and on previous occasions it's nearly always been when there was a maverick swing voter on the MPC. For instance, it happened on a couple of occasions when Willem Buiter, an economist with a tendency dramatically to change his view from one month to the next, was on the committee. Most recently, it happened in the aftermath of 11 September when one member of the Committee preferred a quarter point cut to the half point imposed.

No one else has come even remotely close to challenging Mervyn's position as king hawk, so why's he changing tack? One explanation might be that in preparation for taking up the position of Governor of the Bank of England next July he's already shifting to a more consensus driven approach to decision making. The more plausible one is that the case for a cut simply became overwhelming, with confidence falling and growth prospects deteriorating.

Even so, you would normally find Mr King in the wait and see camp. Two MPC members argued strongly for no change and on past form, Mr King should have been with them. Only last autumn, he gave a keynote speech in which he warned of the dangers of a nasty demand shock to the economy if something wasn't done to halt the soaraway housing market. There have since been signs of a slowdown, especially in London, but nationally prices are continuing to motor at an alarming rate.

The minutes don't say as much, but there was always a pre-emptive feel about that rate cut. With both war and higher taxes looming, something had to be done to support confidence, which is ebbing away. This was it, and although he may have had to swallow a bit in doing so, Mr King was right to align himself with the doves, not that he would accept such a description, of course.

Cult of bonds

Financial journalists aren't much good at bonds, as I learned to my cost in Tuesday's column by confusing the gross redemption yield on a gilt, or yield to maturity as it is sometimes known, with the running yield. I stand corrected by a reader who e-mailed to point out that if the yield on a 10-year gilt rises 2 percentage points from the present 4.25 per cent, you wouldn't be down 30 per cent on your capital, as I wrote, but by just under 15 per cent. This is because by convention the yield on a gilt takes account not just of the annual coupon, but also the capital gain to redemption. All clear now? Let's hope it is, because if it is true that the cult of equity is dead, we should all be throwing away our training in equity valuations and become experts on bonds instead. Not as much as fun as equities, I fear.

jeremy.warner@independent.co.uk