The clock cannot be turned back on power bids

COMMENT

Is this the end of the great electricity takeaway? Ian Lang's wholly unexpected decision to block the two generating bids for regional distribution companies would certainly seem to suggest so. Everything the Trade Secretary has done and said since he took up the post indicated that he was of the same view on mergers and takeovers as his predecessor, Michael Heseltine - big is beautiful and if it results in the creation of national champions, anything goes.

Indeed, when Ed Wallis, chief executive of PowerGen, first floated the idea of bidding for Midlands Electricity with Mr Lang and other ministers last summer, all the indications were that the Government accepted the arguments - an industry dominated by four or five "vertically integrated" players combining generation and distribution would mean a more competitive electricity market. But that was last summer, when the election was a long way a way and the Conservatives had a respectable majority.

Calling a halt to the takeover frenzy is essentially a political decision. Mr Lang's insistence yesterday that competition is not yet sufficiently developed to allow vertical integration on this scale, may hold water, but in large measure it is also an excuse for political expediency. Safeguards could have been put in place to address these concerns. There was nothing to stop Mr Lang bolstering the remedies suggested by the MMC. Instead he has chosen to block the bids entirely and no doubt saved a few votes in the process.

Scottish Power and Manweb? That seemed okay. So too was PowerGen and Midlands, just about. But when National Power took it all a stage further and bid for Southern Electricity, Mr Lang got the spins. Then finally along came the Americans to put the kibosh on the whole thing with a bid for National Power itself. Politically this was the bid too far. The feeding frenzy had to stop and Mr Lang, egged on by right-wing backbenchers, was finally forced to act.

It is hard to see how the Americans can now bid for National Power, unless they sell off their already acquired distribution company, Sweb. But equally this is an industry fundamentally changed by the bid activity - both fruitless and fruitful - of the last six months. The clock cannot be turned back now. National Power will have to justify the sky-high valuation it has achieved in the stock market. That may mean either gearing itself up or breaking itself up by selling off generating capacity piece-meal to all the other distribution companies just dying to do an Eastern. Either way, there is a fee or two left in this sector for the City yet.

Giving thanks for Conrad Black's gall

You have to admire Conrad Black's gall. Having sold shares just weeks before the Telegraph cut its price from 48p to 30p, mislaying the company's broker in the process, he is now offering to buy them back again just before a promised price rise that will all but restore the profitable status quo ante.

The Telegraph's long-suffering shareholders would be forgiven for thinking the buccaneering Canadian was trying it on again, buying back the business just as newsprint costs start to fall and advertising revenue follows consumer spending up in the second half of this year. Even if they do take that view, however, they will probably simply give thanks that an often hostile four-year marriage is coming to a reasonably amicable divorce.

The proposed deal can also be seen as a triumph for the company's independent directors who rightly raised two fingers to last year's opportunistic stab at taking the papers private for a cheeky price of around 450p a share. Even if another 5p cover price rise is pushed through soon, it seems unlikely that the shares would have traded at 570p on the basis of fundamental investment measures for quite some time.

For anyone who has been a shareholder since the 325p placing in 1992, the deal represents a 75 per cent capital appreciation which compares pretty favourably with the 58 per cent rise in the All Share during the same period. At only a whisker below the price at which Hollinger sold pounds 79m of shares two years ago, Mr Black finally seems to be acting with honour.

Ethical niceties aside, he is also plainly the only realistic buyer in town of the minority shares. The sizeable advantage to him of being able to consolidate The Telegraph's cash flows to expand the rest of the Hollinger empire means the shares were always going to be worth more to him than anyone else. The company's share price has always refelected market's scepticism about investing in companies controlled by media tycoons. The nagging doubt about just whose benefit the company is being run for is a good enough reason for taking Mr Black's money and leaving him to it.

The invisible face of the single market

The single European market is no doubt a wonderful thing, but the fact remains that in some industries it is still virtually non-existent. The most important of these is probably pharmaceuticals, an industry where Britain has developed some leading world class companies. This is obviously a sensitive and highly regulated business, but the insistence of member states on retaining national control of pricing and product approval policy is making a nonesense of the whole idea of a single market.

The problem is that though prices are set seperately for each country, the EU insists on free trade between them. In such cases it is only natural that prices should gravitate to the lowest defined level - which for pharmaceuticals are generally those of Spain. You could argue that it is perfectly reasonable for the country with the lowest prices to set the benchmark. But this would be short sighted. One of the reasons why Britain and others allow a higher margin is to encourage pharmaceutical companies to invest in research and development and bring new products to the market.

This may go against most free market principles, but the policy works. Unsurprisingly, Spain doesn't have much of a pharmaceuticals industry. Unless the problem is urgently addressed by the EC, the effect will be to undermine the pharmaceuticals industry across Europe as a whole - it will go elsewhere. Leon Brittan's pea-brained response to the issue is to suggest companies simply withdraw their product from markets where they have a problem. As a former lawyer, the Trade Commissioner should know better. Refusal to supply is regarded legally as tantamount to surrendering patent protection.

Plans for a single European pricing and product approval agency, the obvious solution, were put forward a little while back but thrown out by the European Parliament. As with so many things, EU members want to have their cake and eat it. They want the benefits of the single market, but they also want to retain the tools of national control. With all regulated industries, the two things are largely incompatible. There has to be one rule for all. In pharmaceuticals at least, the EC seems incapable of providing it.