Co-op stiffens defences

Programme of cost cuts intended to deter present and future predators

After it announces its annual results tomorrow, the Co-operative Wholesale Society will begin to strengthen its position against predators.

The CWS, the "sheet anchor" and biggest single institution in the 150- year-old Co-op Movement, will seek to do this largely by cutting costs - but through better use of technology and incentives for staff rather than redundancies.

The message is clearly aimed at the Guernsey-based Lanica Trust, the shell company that whiz-kid investor Andrew Regan is using to make his pounds 500m bid to divest CWS of its non-food businesses. And it follows the CWS threat, revealed by the Independent on Sunday last month, to exclude Mr Regan's institutional backers in the City from its investment activities.

Lanica has said that if its bid succeeds, it will cut the administrative costs of the CWS by pounds 10m. But the CWS, in an attempt to undermine the credibility of the bid, claims its plans stem from a thorough re-assessment of the business ordered by its new chief executive, Graham Melmoth, when he took over at the end of last year.

The argument is academic for the time being, however, because dealings in Lanica's shares have been suspended since rumours of the bid emerged in February and the company's share price rocketed from 116p to pounds 19.50.

According to Lanica's last accounts, it had net assets of less than pounds 3m; almost two-thirds of the shares were owned by its finance director and offshore entities, in which Mr Regan and four Monaco investors were named as directors. In parallel, and along with Schroders, Jupiter, the stockbroker Killik & Company and the millionaire Tory candidate David Evans, Lanica has shares in Mr Regan's personal investment vehicle, Galileo.

The suspension of Lanica's shares leaves his bid on hold, and it is impossible to say for how long. The Stock Exchange is prepared to say only that it is "still in talks with all the parties". Sceptics, who believe the bid may have been given extra spin to camouflage the suspension, think these could last some time.

This might explain why, in spite of stories in the media that Mr Regan intended to get a question asked on his behalf at the annual general meeting of the CWS on 17 May by an affiliated society, none had been tabled by last Monday's deadline.

For the CWS, which has 700 outlets, the 1996 results are unlikely to be encouraging. Forecasts suggest that on a turnover of more than pounds 3bn, profits after tax will continue their slide from pounds 49.4m in 1994 and pounds 35m in 1995.

Although an estimate of pounds 30m published last week may be a shade unkind, only a third of the profit is expected to come from food retailing and a spread of activities including travel agencies, funeral parlours, farming, milk distribution and dairy processing.

The other pounds 20m-plus is expected to come from the Co-operative Bank, which has recently reported a 24 per cent hike in pre-tax profits and which is Lanica's primary target. If such figures are confirmed tomorrow, they will be greeted by Lanica as further justification for freeing the high- performance activities of CWS from an inhibiting yoke.

The riposte from CWS at close of play last week was scathing. "So far there's been nothing tangible, nothing firm. It's almost a phantom bid," said a CWS spokesman. "Everything's been done by speculation. For the society to sell off its most competitive operations would make no sense at all."

None the less, the CWS has admitted that the bid may have done the Co- ops a favour by giving them "the focus they need" - and highlighting the problems that need to be solved if they are to survive competition from the big supermarket chains.

Many of these have been created by the democratic nature of the movement and its constituent societies and have been evident to staff and customers for years. They boil down to fragmentation and, ironically, the fact that in their dealings with each other the co-operatives are still not nearly co-operative enough.

Although there are 50 retail societies affiliated to CWS and many others are linked to CRS, the second largest body in the movement, with 500 outlets, others again are linked to neither. "Mr Melmoth's major task," said a CWS adviser, "is to bring these disparate retail co-operative societies together."