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Rio raid shows China can play the City at its own game
2008-02-02
For a piece of City deftness to match the stunning Sino-American commando assault on Rio Tinto, you probably have to go back to the 2006 "dawn raid" on BAA by Ferrovial, which knocked a Goldman Sachs (NYSE:GS)-led consortium out of the race and won the airports group for the Spanish company. Goldman, which advises BHP Billiton (NYSE:BHP), was again on the wrong side on Friday after China's Chinalco and Alcoa of the US crept into the market unseen and bought a large stake in BHP's prey. The manoeuvre puts paid to any lingering suggestion that emerging market companies, state-owned groups or sovereign wealth funds are clumsier than their developed- world counterparts. As one banker not involved in the deal said: "Anyone who thinks sovereign wealth funds are unsophisticated is making a serious mistake." There have been errors along the way: Baosteel's cack-handed public declaration to the Chinese press of its interest in Rio was one example; the initial failure of Vale of Brazil to put out an official statement in London about its discussions with Xstrata was another. The Chinalco move was obviously eased by the buyers' willingness to pay a hefty premium for the stock. But these are quibbles. Properly advised - by Lehman Brothers (NYSE:LEH) in Chinalco's case - these companies are now a match for longer- established rivals and it would be patronising to suggest otherwise. Besides, they have the money - and in the current climate, nobody, in the City or on Wall Street, is likely to argue with that. Square Mile-high club City-based executives and their advisers thrive on a combination of money and impatience. Top dogs have developed an assumption that if they want something done well and fast, all they have to do is pay more and they will get it. Judging from their vocal complaints, that's an assumption that is regularly confounded when they have to leave their limos and join the queues with mere mortals at Heathrow. British Airways' cunning plan to fly them across the Atlantic, business class, from London City Airport in their backyard should pander to them. According to a survey of European business travellers by American Express, getting to and getting through the airport are the two most stressful parts of any business trip. Given that the Airbus A318 on the route will have only 32 seats, it would be logical to ask passengers to pay a significant premium for exclusivity and an end to the hassle. The BA service, due to start next year, could increase the pressure on Eos and Silverjet, the two rival all-business transatlantic airlines still standing following Maxjet's bankruptcy before Christmas. But there is a snag. The A318s can't load up on fuel or they wouldn't make it off the short runway at London City (a bad start to any flight, business-class or not). That means that on the outward-bound flight from London, they will have to stop to refuel, perhaps at Shannon in Ireland. BA chief executive Willie Walsh's challenge will be making passengers feel as though this temporary grounding is a privilege rather than a pain. Irish whiskey-tasting anyone? Reassuringly unexciting This was the week in which a hedging and property strategy that went wrong cost Mitchells & Butlers £274m. As pub signs go, this was a lurid one. The picture painted by Greene King and Fuller Smith & Turner on Friday was less troubled, but hardly reassuring. As owners of pub estates and breweries, both are feeling the pain of smoking bans, slowing consumer spending and higher raw material prices. Meeting those challenges requires sharp management - of costs and of shareholders. Both companies have, for instance, bought back shares and placed emphasis on the "dry" parts of their business. The credit squeeze and property downturn forced Greene King, by far the bigger of the two, to shelve its own plans to realise value from its real estate. That is a matter of regret for Rooney Anand, chief executive, rather than relief, but it seems to have redoubled his desire to secure the group against difficult conditions. Greene King managed to increase margins in the 38 weeks to January 20 and its retail side now generates 30 per cent of business directly from food, with an unquantified proportion of drink sales also based on meal purchases. If there was disappointment yesterday, it was that careful and targeted investment in the managed pubs estate is not yet showing through in like-for-like sales, which were flat or slightly down. A multiple of 10.5 times forecast earnings for 2007-08 looks about right - and in this week of all weeks, pub company investors may prefer flat to fizz. Full fathom five The London Stock Exchange has shown its humane side by opting not to fine SubSea Resources, whose line of business is the search for treasure-filled wrecks. On top of the public censure for "reckless conduct", a monetary penalty could have sunk the company, whose shares, floated on Aim at 20p, are waterlogged at 0.35p. The only regret is that the LSE didn't enter fully into the spirit of the occasion and add a unique clawback clause, seeking a share of the booty if SubSea is able to salvage itself.
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